TOKYO, March 17 (UPI) -- The Bank of Japan Wednesday said it would keep bank-to-bank lending rates low and expand a lending program to add liquidity to financial markets.
The central bank's policy makers said the lending rate for "uncollateralized" overnight lending would remain at 0.1 percent. The lending program begun in December "to further enhance easy monetary conditions" would be expanded, the bank said, "to encourage a decline in longer-term interest rates by substantially increasing the amount of funds to be provided through the fixed-rate operation."
The worry in Japan is not inflation, but deflation, a period of shrinking prices that stalls economic growth as consumers and business put off buying in hopes prices for goods on their shopping lists will decline if they wait. The BOJ called deflation "a critical challenge for Japan's economy."
The BOJ said the economy "is picking up mainly due to policy measures taken at home and abroad," a reference to stimulus measures in Europe and the United States, critical export markets for the Japan. "Exports and production have been increasing" with "improvement in overseas economies," the bank said. However, "there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand," a bank statement said.