The Bank of Japan (BOJ) maintained its interest rates at 0.25% during Friday's policy meeting, reinforcing confidence in Japan’s economic recovery. The central bank also issued an upgraded view on private consumption, reflecting optimism despite ongoing price increases.
The BOJ's decision to keep rates steady was widely expected, as Governor Kazuo Ueda and policymakers assess the trajectory of inflation and economic growth. Markets are keenly awaiting Ueda’s post-meeting news conference, where his remarks could provide insights into the timing and pace of future rate hikes.
"Private consumption has been on a moderate increasing trend despite the impact of price rises and other factors," the BOJ stated, marking a more optimistic outlook than its previous view of resilient consumption.
The BOJ has already taken significant steps this year, including ending negative interest rates in March and raising short-term rates to 0.25% in July—a notable shift from the decade-long stimulus program aimed at boosting inflation.
Ueda has emphasized the central bank’s readiness to raise rates further if inflation remains on track to sustainably meet the 2% target. This stance sets the BOJ apart from many other central banks, including the US Federal Reserve, which recently began cutting borrowing costs.
Friday's data showed core consumer inflation at 2.8% in August, marking the fourth consecutive month of acceleration. This keeps expectations alive for another potential rate hike by the BOJ, with many economists predicting a move in December.
Japan's economy grew by 2.9% in the second quarter of this year, with real wages increasing for two straight months. However, challenges remain, including slowing global demand from key trading partners like China and the US, as well as a recent rebound in the yen.
Market volatility is also a concern for BOJ policymakers, as July's rate hike triggered significant fluctuations in the yen and equity prices. Nevertheless, the bank remains committed to its hawkish stance, with some board members advocating for short-term rates to eventually rise to around 1%.
The next opportunity for a detailed policy review will come during the BOJ’s Oct 30-31 meeting, when the board conducts a quarterly assessment of its economic forecasts.
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