Bank of Japan holds off fresh easing measures

Japan's central bank on Friday held off fresh easing measures, with analysts saying that policymakers were waiting to see how the weekend's Greek election would affect the eurozone crisis.

The Bank of Japan (BoJ) said it was holding key interest rates at between zero and 0.1 percent but would also leave unchanged a 70 trillion yen ($885 billion) asset purchase programme, a key monetary policy tool for the bank.

The decision was likely to disappoint some Japanese lawmakers who have called on the bank to do more to kickstart the sputtering economy.

Markets have also been watching for signs of further easing action by the US Federal Reserve amid signs of a worsening labour market in the United States.

After the BoJ announcement, the dollar added to its overnight losses against the Japanese currency, hitting 78.92 yen from 79.34 yen in New York on Thursday.

"It's difficult for the BoJ to take fresh action ahead of Greece's elections Sunday and the US Federal Reserve's policy meeting," Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo, told AFP.

"The BoJ hopes to see developments after these events. If financial markets get upset, then it would take additional easing measures next month," he added.

Investors may flock to safe-haven Japanese government bonds if Greek anti-austerity parties snatch victory on Sunday, said Chotaro Morita, chief rates strategist at Barclays Capital Japan.

"If the leftists win, the outlook will be more uncertain, and investors will pick up (Japan government bonds)," Morita said.

In a statement following its two-day policy meeting, the BoJ echoed previous comments on the state of Japan's economy, acknowledging the damaging deflation that has plagued the nation for years and Europe's fiscal woes.

"In global financial markets, some nervousness continues to be seen, mainly due to concerns about the European debt problem," it said.

"Particular attention should therefore be given to developments in these markets for the time being."

Later Friday, BoJ Governor Masaaki Shirakawa reiterated that the eurozone crisis was the biggest factor threatening Japan's economy and its fragile recovery.

"The European debt problems remain the risk factor requiring the most attention," he told a press briefing.

Recent data suggest an uptick in Japan's economic growth, although factory output remains anaemic while a strong yen has hurt the crucial export sector.

And the health of the 17-nation eurozone has significant implications for Japan, which is a major exporter to Europe and holds its public debt.

A flight by investors from the euro has also helped push up the value of the yen, making Japanese goods relatively more expensive overseas.

In April, the BoJ rolled out further easing measures to halt falling prices and prop up the economy, which is struggling to recover from last year's quake-tsunami disaster and floods in Thailand.

Falling prices have a slowing effect on the economy by encouraging shoppers to put off purchases in the hope they will pay even less in the future, while firms curtail investing in capital and staff in the absence of growing demand.

The BoJ, meanwhile, has also boosted a loan programme amid reconstruction efforts seen as crucial to reviving the economy.

The central bank has been forced to resort to unconventional measures as its ability to free up money has been limited since interest rates were cut to their record lows at the end of 2008 during the global financial crisis.

-- Dow Jones Newswires contributed to this report --

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