Bank of Japan keeps ultra-low interest rates unchanged

Bank of Japan keeps ultra-low interest rates unchanged


Makes no change to dovish policy guidance

Follow on
Follow us on Google News

TOKYO (Reuters) – The Bank of Japan maintained ultra-loose monetary policy on Tuesday in a widely expected move, underscoring policymakers' preference to await more clues on whether wages will rise enough to keep inflation durably around its 2 per cent target.

The central bank also made no change to its dovish policy guidance that pledges to take additional monetary easing steps "without hesitation" if needed.

Markets are focusing on any hints Governor Kazuo Ueda offers at his post-meeting briefing on how soon the central bank could end its negative interest rate policy.

Read more: Wow --- Japan slows inflation without raising interest rates

At the two-day meeting that ended on Tuesday, the BOJ kept its short-term rate target at -0.1pc and that for the 10-year government bond yield around 0pc. It also left unchanged a loose upper band of 1.0pc set for the 10-year yield.

"There are extremely high uncertainties surrounding Japan's economy and prices," the BOJ said in a statement.

Governor Ueda is expected to hold a news conference at 3:30 pm (0630GMT) to explain the policy decision.

Japan has seen inflation hold above 2pc for over a year and some firms have signalled their readiness to keep raising wages, increasing the chance of a near-term policy shift.

Read more: Pakistan vulnerable to inflation, high interest rate, rupee depreciation, low GDP

In July, the BOJ relaxed its grip on long-term borrowing costs by raising a cap set for the 10-year bond yield. The cap was watered down to a loose reference in October in a sign Ueda was moving steadily toward dismantling his predecessor's radical stimulus.

More than 80pc of economists polled by Reuters in November expect the BOJ to end its negative rate policy next year with half of them predicting April as the most likely timing. Some see the chance of a policy shift in January.

Read more: Food prices propel weekly inflation to highest level since early June against the predictions made

Analysts say the BOJ may find it easier to move in months like January and April, when it releases a quarterly outlook report with fresh growth and price projections.

But a sharply changing global monetary policy environment may complicate the BOJ's decision with US and European central banks signalling that they are done hiking rates.

Raising rates at a time other central banks are cutting them could trigger a spike in the yen that would hurt big manufacturers' profits and discourage them from wage hikes, analysts say.

Political factors also complicate the BOJ's policy path with persistent inflation blamed for pushing down Prime Minister Fumio Kishida's approval ratings to historical lows.