By Megumi Fujikawa
TOKYO – The Bank of Japan kept interest rates ultra-low on Thursday, averting a global wave of monetary tightening despite rising inflation.
The decision confirms a new policy divergence between the United States and Japan, adding downward pressure on the yen. The yen briefly fell to a new 24-year low of over 145 against the dollar after the BOJ announcement. On Wednesday, the Federal Reserve raised interest rates by 0.75 percentage points and signaled further significant increases.
The Bank of Japan kept its short-term interest rates at minus 0.1% on Thursday and its 10-year Japanese government bond yield target around zero.
Consumer inflation in Japan hit 3% in August, beating the bank’s 2% target for the fifth consecutive month. It is still much softer than in the United States, where inflation remains above 8%.
The recent weakness of the yen has inflated import prices as Japan relies heavily on imports for food and energy. Their prices are already rising due to the war in Ukraine and global supply shortages.
Japanese officials have stepped up their verbal interventions on the currency this month. Finance Minister Shunichi Suzuki said Tokyo was not ruling out any measures to halt the yen’s slide, including government intervention to sell dollars and buy yen.
However, BOJ Governor Haruhiko Kuroda said he does not see monetary tightening as a good way to stabilize the yen. BOJ officials believe that the current inflation in Japan is unlikely to last long. Mr. Kuroda recently said that inflation is expected to come down to 1.5% in 2023.
Mr Kuroda and other board members said Japan needed accommodative monetary policy as its economy is still recovering from the pandemic and wage growth remains slow.
Write to Megumi Fujikawa at [email protected]