RTTNews - Wednesday, the Bank of Japan retained its key interest rate, while at the same time extended its special funding measures for three months to facilitate corporate financing.

The Policy Board of the central bank unanimously voted to hold the uncollateralized overnight call rate at 0.1% as expected. The last change in rate was a 0.10% cut in interest rates at the bank's December 2008 meeting.

The Board also stood united in extending the overnight purchases of commercial papers and corporate bonds to December 31, 2009 from September 30. Special funds-supplying operations to facilitate corporate financing were also extended till December 31. At the same time, the central bank will continue the U.S. dollar funds-supplying operations till February 1, 2010.

Yesterday, Finance Minister Kaoru Yosano said BoJ should extend its purchases of commercial papers and corporate bonds which are due to expire in September.

According to BoJ, economic conditions stopped worsening. Notwithstanding the generally tight financial conditions have started to show signs of improvement despite remaining generally tight.

Growth prospects remain broadly unchanged from its April 2009 Outlook for Economic Activity and Prices. The central bank expects the economy to start recovering from the second half of 2009, helped by fiscal and monetary policy measures, a recovery in overseas economies and improvement in domestic and overseas financial market conditions.

The BoJ lowered its fiscal 2009 real GDP estimate to minus 3.4% from minus 3.1% estimated in April. The economy is expected to see 1% growth in 2010. Due to a rise in crude oil prices, it expects somewhat higher annual rate of increases for domestic corporate goods prices and consumer prices in fiscal 2009 compared with its April projections.

The Monetary Policy Statement also said, With regard to risk factors, those that demand attention in the area of economic activity are the continued high downside risks to the economy stemming from future developments in global financial and economic situation, changes in firms' medium to long-term growth expectations, and financial conditions in Japan. Further, BoJ sees possibility of a more-than-expected decline in inflation, provided the downside risks to the economy materialize.

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