The Bank of Japan maintained ultra-low interest rates on Friday and pledged to continue supporting the economy until inflation sustainably reaches its 2% target.
As widely expected, the Bank of Japan maintained the interest rate charged on excess reserves of financial institutions deposited with the central bank at 0.1 percent. and a target yield on 10-year government bonds of approximately 0 percent.
Negative interest rates
The Bank of Japan’s decision contrasts with decisions by US and European central banks, which at recent meetings signaled their determination to keep borrowing costs high to contain inflation.
The central bank did not change its forward forecast, which maintained a commitment to “take additional easing measures without hesitation” – wording that some market participants said could have been revised to adopt a more neutral tone.
Inflation in Japan
While Japan’s central bank doesn’t agree for now, analysts are bracing for a short-term policy shift amid signs of rising inflation pressures in the world’s third-largest economy.
Data released earlier on Friday showed core inflation in Japan reached 3.1% in August, remaining above the central bank’s target of 2%. for the seventeenth month in a row.
After the interest rate decision was announced, the Japanese yen rose to around 148.09 per dollar, near the psychologically important level of 150, seen as the limit for intervention by currency authorities.
“The decision reflects a lack of confidence among policymakers that wage growth will gain enough momentum to achieve sustained inflation,” Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities, told Reuters.