Bank of Japan Holds Interest Rates Steady

Investing.com — The Bank of Japan left interest rates unchanged, as expected, and anticipates robust growth in the Japanese economy amid rising inflation.

The BOJ kept its benchmark short-term rate at 0.25%, with unanimous support from all nine board members.

This decision aligns with market predictions, as the BOJ takes a wait-and-see approach after raising interest rates twice this year. The bank provided little indication of future rate hikes in its monetary policy statement. An address by Governor Kazuo Ueda, scheduled for 02:30 ET (06:30 GMT), is expected to shed more light on potential future actions.

The BOJ forecasts that the Japanese economy will continue to grow above consensus, with inflation anticipated to rise in the coming months. Underlying consumer price index inflation is expected to increase gradually.

This announcement follows CPI data for August, revealing inflation at a 10-month high, fueled by strengthening private consumption.

Expectations of higher inflation have significantly impacted the BOJ’s rate decisions this year, driven by forecasts of rising inflation and private spending from increased wages, which have aligned with current trends.

However, the central bank highlighted “high uncertainties” regarding economic activity and prices in Japan, noting that foreign exchange market volatility could affect local prices more than previously observed.

The BOJ’s decision contrasts with the Federal Reserve’s recent interest rate cut, marking the start of an easing cycle.

Following the BOJ’s decision, the Japanese yen strengthened, causing the USDJPY pair to drop 0.3% to 142.16 yen. Meanwhile, Japanese stocks saw a reduction in intraday gains, with the Nikkei 225 trading up 1.9% after peaking at a 2.5% increase earlier in the session.