The Bank of Japan has maintained extremely low interest rates and restrained policy guidelines to reassure markets that it will continue to swim against a global flood of central banks tightening monetary policy to combat rising inflation.
The latest decision by the BOJ came on Thursday after the United States Federal Reserve recorded its third consecutive 0.75 percentage point rise on Wednesday and signaled further interest rate hikes, underlining the determination not to give up its fight to curb inflation.
As generally expected, the BOJ unanimously maintained its target of -0.1 percent for short-term interest rates and 0 percent for 10-year government bond yields.
The BOJ remains an outlier in a global wave of central banks that are withdrawing stimulus packages to combat rising inflation, and is likely to be the last major monetary authority in the world with a negative interest rate.
Markets had focused on whether the BOJ would show the first signs of a change in approach by optimizing its promise to keep interest rates at “current or lower” levels and stepping up stimulus packages as needed to support the economy.
BOJ Governor Haruhiko Kuroda is expected to hold a press conference to explain Thursday’s policy decision.
Japan’s core consumer inflation accelerated to 2.8 percent in August, surpassing the BOJ’s 2 percent target for a fifth month in a row as price pressure from commodities and the falling yen widened.
However, Kuroda has ruled out the possibility of a short-term withdrawal of economic stimulus packages, as wages must rise more strongly in order to achieve its inflation target of 2 percent in the long term.
Kuroda’s restrained message has helped weaken the yen, which contradicted the government’s efforts to slow the currency’s decline through verbal threats of yen-buying intervention.
Once welcomed for the boost it gives exports, a weak yen has caused Japanese policymakers a headache as it drives up the costs of importing already expensive fuels and raw materials.
The world’s third-largest economy grew by an annualized 3.5 percent from April to June, but its recovery was hampered by a resurgence of COVID-19 infections, supply bottlenecks, and rising commodity costs.