<div><p>Japan's central bank left its key interest rate unchanged at 0.1 percent at a meeting Tuesday, saying it was crucial for the world's second largest economy to overcome deflation.</p><p>At the same time, the Bank of Japan upgraded its growth forecasts slightly, predicting that the economy would shrink 2.5 percent in this financial year to March before rebounding 1.3 percent next year.</p><p>"Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not sufficient momentum to support a self-sustaining recovery in domestic private demand," it said in a statement.</p><p>In October the BoJ had forecast a 3.2 percent contraction in Japan's gross domestic product this year followed by a 1.2 percent expansion next year.</p><p>The central bank maintained its projection that Japan's economy would see three years of deflation as it claws back from its worst slump in decades, but said that the price falls might be less severe than previously thought.</p><p>Consumer prices are expected to drop 1.5 percent in the current financial year, followed by a further decline of 0.5 percent next year and 0.2 percent the following year, the BoJ said.</p><p>In October it had projected falls of 1.5 percent this year, 0.8 percent next year and 0.4 percent the year after.</p><p>"The Bank recognises that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," the BoJ statement said.</p><p>Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, hitting corporate earnings and prompting consumers to put off purchases in the hope of further price drops.</p><p>The current global economic downturn and a slump in commodity costs pushed the country back into the deflationary doldrums.</p><p>Core consumer prices fell year-on-year for a ninth straight month in November, according to the latest government figures.</p><img src="http://admatch-syndication.mochila.com/images/ad.gif?aid=67794473&bid=informcom" /></div><div id="copyright"><div>

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