The Bank of Japan kept its policy unchanged while slightly raising its growth forecast, signaling confidence that the economy will continue on a path toward policy normalization after lifting the benchmark interest rate to its highest level since 1995.
The Bank of Japan on Friday announced it would keep its policy rate unchanged at 1%, a result predicted by all 52 economists surveyed by Bloomberg. The vote was 8 to 1, following a previous call by Kanda Kazu for two consecutive interest rate hikes.
The central bank continued to warn of risks that underlying inflation could exceed the 2% target and pledged to keep raising borrowing costs in response to economic and price trends.
The bank also revised its assessment of the balance of risks to economic growth, stating that the overall risk balance is neutral rather than tilted downward. This indicates that the drag from Middle East conflicts has not been as severe as initially feared by authorities, and global demand for artificial intelligence has helped mitigate the impact.
In summary, the signals released by the committee led by Bank of Japan Governor Katsuo Ueda suggest that the central bank is preparing to raise interest rates again, as continued yen depreciation could intensify inflationary pressures. Investors widely expect the BOJ to adjust its policy in October and will be closely watching today’s press conference by Ueda for clues to confirm this expectation.
In its latest quarterly economic forecast, the central bank lowered the median GDP growth projection for this year and next, expecting GDP to grow by 0.6% in the current fiscal year. The central bank also revised down its key inflation forecast from 2.8% to 2.5%, citing the impact of government subsidies. These projections are broadly in line with expectations from economists surveyed by Bloomberg.
Shortly after the Bank of Japan’s decision was released, the yen weakened slightly against the dollar to around 160.88. According to a person familiar with the matter, authorities intervened in the market on Thursday during New York trading hours, pushing the yen higher by as much as 3.3% against the dollar.
Japanese authorities refused to confirm whether they intervened in overnight trading, but senior Japanese monetary policy official Atsushi Muramura said Friday that Japan received more than just moral support from the United States.
