TOKYO: The Bank of Japan (BoJ) left its ultra-loose monetary policy unchanged on Thursday despite recent yen weakness and moves by other central banks to raise interest rates to fight inflation, although it raised its inflation outlook.
In a widely expected move, Japan’s central bank kept its benchmark short-term interest rates at -0.1% at the end of its two-day policy-making meeting.
The BoJ said it would continue to guide Japanese 10-year government bond yields to around zero percent to support the East Asian country’s economic recovery from the coronavirus pandemic.
“Japan’s economy has resumed a trend, although some weakness has been observed in part, mainly due to the impact of Covid-19 and rising commodity prices,” the central bank said. in his assessment.
Following the policy announcement, the yen, which recently plunged to a 20-year low against the United States, fell near the 130 level, prompting the BoJ to say its recent bond buying fixed-rate state loans would continue “every business day”. This is in order to combat a rise in benchmark 10-year bond yields.
The BoJ’s decision comes as the Federal Reserve is expected to raise its key interest rate again as it continues its aggressive monetary policy measures to rein in rising consumer prices.
The BoJ’s dovish moves are seeing interest rates between the two allies widen, triggering dollar buying and yen weakness, as well as stock market volatility in Tokyo, analysts said.
But the central bank sees the volatility and inflation that U.S. and European central banks are responding to as temporary, though Japan faces similar inflationary pressures, strategists say.
The BoJ’s outlook sees Japan’s consumer price index excluding fresh food rising to a median of 1.9% in fiscal 2022 from a year earlier.
That compares with its previous forecast of a 1.1% increase and moving closer to the bank’s 2% inflation target, set in 2013.
Rising prices, as policymakers have warned, could hurt corporate profits, as well as household incomes, as inflation here is out of step with higher wages or rising demand. private.