BOJ leaves rates steady; cuts growth outlook

The Bank of Japan's (BOJ) policy board voted unanimously to keep its benchmark interest rate unchanged at 0.1% on Thursday, citing an increasingly worsening economic outlook at home and abroad.

The Japanese central bank also downgraded its assessment of the world's second-biggest economy, and said that a recovery would begin to kick in by the second half of the fiscal year 2009-10.

The BOJ predicted that gross domestic product (GDP) would contract for two full years through March 2010.

The central bank said the economy would likely shrink 1.8% in the current fiscal year to March and contract 2% the following year, down from its forecasts issued in October for growth of 0.1% and 0.6%, respectively.

The BOJ used the phase deteriorating significantly to describe economic conditions, noting that domestic demand has become weaker against a background of declining corporate profits, deteriorating employment conditions and falling household income.

"The economy will from the latter half of fiscal 2009, start recovering and price declines will abate as global financial markets regain stability and overseas economies move out of their deceleration phase," the policy board said in its monthly statement.

The BOJ said it expected the core consumer price index (CPI), which excludes prices of fresh food but not oil, to rise 1.2% in the year ending March, as against a 1.6% increase that it had forecast in October.

The Japanese central bank said core consumer prices were likely to fall 1.1% in the year ending March 2010, compared with a flat reading seen in October.

The BOJ also released principles detailing how it plans to implement its purchases of commercial paper.