Japan central bank keeps interest rate near zero

TOKYO — Japan's central bank on Friday kept its key interest rate unchanged at nearly zero and extended by six months an emergency loan program for disaster-hit regions.

The Bank of Japan's nine-member policy board voted unanimously at a two-day meeting to maintain the overnight call rate target at zero to 0.1 percent.

It described the world's No. 3 economy as "picking up" and predicted an eventual return to a moderate recovery despite concerns about the health of the global economy.

Industrial production figures last week showed that output had nearly recovered to the levels recorded before the March 11 earthquake and tsunami devastated northeastern Japan. Exports in August rose for the first time in six months. Capital investments and private consumption also show some pick up, the central bank said.

A key Bank of Japan report earlier this week offered a cautiously optimistic assessment of corporate Japan, where business confidence is improving as recovery from the March earthquake and tsunami takes hold.

To support reconstruction efforts, the central bank voted to give financial institutions in disaster areas six more months — until the end of April 2012 — to apply for loans through a special program.

The central bank said it would vigilantly watch the health of the U.S. economy as well as sovereign debt problems in Europe. It also questioned whether high-growth emerging economies could maintain momentum while controlling inflation.

"It is necessary to continue carefully monitoring how Japan's economy will be affected by the uncertainty regarding the developments overseas and by the ensuing fluctuations in the foreign exchange and financial markets."

The central bank promised to keep interest rates at virtually zero until it decides that "price stability is in sight." Price stability for central banks usually means a stable rate of increase in prices. Japan suffers from prolonged falling prices — also known as deflation.