Bank of Japan maintains ultralow interest rates

by Megumi Fujikawa

TOKYO – The Bank of Japan kept its ultralow interest rates unchanged on Thursday, staying away from a wave of global monetary tightness despite rising inflation.

The decision confirms another policy divergence between the US and Japan, adding downward pressure on the yen. The yen fell to a fresh low of over 145 against the dollar, hitting a 24-year low after the BOJ’s announcement. On Wednesday, the Federal Reserve raised interest rates by 0.75 percent and signaled an additional large increase.

The Bank of Japan on Thursday kept short-term interest rates at minus 0.1% and targeted the 10-year Japanese government bond yield at nearly zero.

Consumer inflation in Japan reached 3% in August, exceeding the bank’s 2% target for the fifth straight month. This is still very mild compared to the US, where inflation remains above 8%.

The yen’s recent weakness has pushed up import prices as Japan largely depends on food and energy imports. Their prices are already rising due to the Ukraine war and the lack of global supplies.

Japanese officials have intensified verbal interventions on the currency this month. Finance Minister Shunichi Suzuki said Tokyo was not ruling out any steps to stem the yen’s decline, including government intervention to sell the dollar and buy the yen.

However, BOJ government Haruhiko Kuroda has said that he does not see monetary tightening as a good way to stabilize the yen. BOJ officials believe that Japan’s current inflation is unlikely to last long. Mr Kuroda recently said that inflation is likely to go back to 1.5% in 2023.

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Mr Kuroda and other policy board members have said Japan needs easing monetary policy as its economy is still recovering from the pandemic and wage growth remains sluggish.

Write to Megumi Fujikawa at [email protected]

(END) Dow Jones Newswires

September 21, 2022 23:16 ET (03:16 GMT)

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