Japan keeps interest rates on hold

The Japanese central bank has kept the interest rates on hold. The rates now stay at 0.1%.

The reason behind this measure, is the attempt to boost the country's economic recovery. Keeping these rates low was essential in the country's fight against falling prices, which are undermining the economy's recovery.

As result, Japan enjoyed economic growth of 0.9% in the last three months of 2009.

This growth also results in a duel with China to become the world’s second largest economy.

The only challenge Japan now faces, is overcoming deflation. If the Japanese economy returns to a sustainable growth path with price stability, Japan could enjoy an even higher growth.

Japan has a long history of struggling with deflation. Japan struggled more than 10 years with falling prices during Japan’s “lost decade”.

Deflation is bad for an economy because consumers and businesses wait to purchase products in the expectation that prices will fall further in the future.

I think that Japan can’t overcome this challenge in a short period. Such problems can only be solved with a solid project based on a long period. The chance is big that Japan is going to lose its second place in the top of largest economies.

Bram Verstraete

http://news.bbc.co.uk/2/hi/business/10092811.stm