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Japan keeps key overnight rate firm

JAPAN'S central bank kept its benchmark rate steady and boosted its purchase of government bonds yesterday to keep ample cash in the monetary system as the nation grapples with a global slowdown.

The Bank of Japan has little room left to go on standard monetary policy, such as lowering interest rates, with its benchmark interest rate already close to zero. Wrapping up a two-day meeting, the bank's board voted unanimously to keep its key overnight call rate at 0.1 percent.

That compares with the United States's targeted range of between zero and 0.25 percent and the euro-zone's 1.5 percent.

The BOJ also raised its monthly government bond purchase to 1.8 trillion yen (US$18.3 billion) from the previous 1.4 trillion yen, effective this month.

Late Tuesday, the bank said it is considering providing loans to commercial banks in an effort to shore up their capital base and encourage banks to lend themselves. Analysts said the move, if adopted, would be unusual for central banks.

It is still unclear what the central bank's final decision plan might be.

"The options left for what the Bank of Japan can do are limited, and so it has decided to carry out what it can do," said Yasuo Yamamoto, an economist at Mizuho Research Institute in Tokyo.

Stability vital

The central bank's Governor Masaaki Shirakawa said much of the problem of financing for major companies ahead of the closing of the fiscal year later this month was fixed, but money shortages were likely to drag into the coming fiscal year, threatening the health of the economy.

"The difficult financial conditions are expected to continue," Shirakawa told reporters at a press conference. "We decided it was crucial to continue to aggressively provide ample cash to ensure stability in the financial system."

Investors were encouraged by the central bank's efforts, and the Nikkei 225 index climbed for a fourth day, closing yesterday at 7,972.17, a rise of 0.29 percent.

"Investors took heart from the bank's moves. The Bank of Japan is not sitting still. It is taking action aggressively to ensure the smooth liquidity in the financial market," said Masatoshi Sato, strategist at Mizuho Investors Securities Co.

Other central banks are resorting to unusual moves to cope with the continuing global crisis. The Bank of England, which earlier this month cut rates to its lowest ever level of 0.5 percent, has announced a 75-billion -pound (US$103.6 billion) plan to buy assets such as government securities and corporate bonds.


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