BOJ keeps interest rates stable and emphasizes global risks

TOKYO: The Bank of Japan maintained ultra-low interest rates on Thursday and signaled that global economic developments need to be scrutinized. She underlined her focus on the risks to a fragile domestic recovery when deciding on the next policy tightening.

But the central bank predicts inflation will hover around the 2 percent target in coming years, underscoring its determination to keep raising borrowing costs if the economy makes a moderate recovery.

“The BOJ should pay due attention to the future direction of the overseas economies, especially the US economy, and to developments in the financial markets,” the BOJ said in a quarterly report.

“It should also be examined how these factors will affect the prospects for Japanese economic activity and prices, the risks associated with them and the likelihood of these prospects being realized.”

As widely expected, the BOJ kept short-term interest rates steady at 0.25 percent during its two-day meeting that ended Thursday.

The board expects core consumer inflation to reach 2.5 percent in the current fiscal year ending March 2025, followed by 1.9 percent in fiscal 2025 and 1.9 percent in 2026.

It also saw ‘core-core’ inflation, which strips out the impact of fuel costs and is closely watched by the BOJ as a key measure of demand-driven price movements, reaching 2.0 percent in fiscal 2024, in 2025 1.9 percent and 2.1 percent in 2026.

Markets will focus on Governor Kazuo Ueda’s post-meeting briefing, scheduled for 3:30 PM (06:30 GMT), for clues on the timing and pace of further rate hikes.

The BOJ ended negative rates in March and raised short-term rates to 0.25 percent in July, as Japan made progress toward sustainably reaching its 2 percent inflation target.

Ueda has repeatedly said the BOJ will continue to raise rates if the economy moves in line with expectations. But he also said the bank was in no hurry as inflation remained subdued.

Data released Thursday showed factory output and retail sales in Japan rose in September, suggesting the economy is on track for a moderate recovery.

The ruling coalition’s loss of a majority in elections this weekend has increased concerns about policy paralysis, raising the barrier to further rate hikes, analysts say.

A small majority of economists polled by Reuters expect no interest rate hike this year, although most expect a rate hike in March.