Page last updated at 06:52 GMT, Wednesday, 17 March 2010

Japan's central bank seeks to boost lending

Tokyo shoppers
Deflation tends to make consumers delay purchases as prices fall

Japan's central bank has increased a stimulus measure aimed at encouraging financial institutions to lend more.

It has doubled to 20 trillion yen (£145bn; $220bn) the amount of cheap short-term loans it is offering banks.

The scheme, which lends money at a rate of 0.1%, was introduced in December to try to tackle the deflation which is threatening Japan's economic recovery.

The Bank also voted to hold interest rates at 0.1% - the level at which they have been since December 2008.

Bank pressure

Data released last week showed that Japan's economy grew by less than first estimated in the final quarter of 2009.

The Cabinet Office said the economy expanded by 0.9% between October and December of last year, down from its initial estimate of 1.1%.

That downward revision increased pressure on the Bank of Japan to ease monetary policy.

However, with interest rates already down to 0.1%, it does not have much room to move.

The continuing problem of deflation is bad for an economy as it tends to make consumers and businesses delay major purchases in the expectation that prices will fall further in the future.

Japan has a history of struggling with deflation. The 1990s are often referred to as Japan's "lost decade" because of its 10-year struggle with falling prices.

The period followed a collapse in prices in the housing market and the stock market at the end of the 1980s.

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