World Trade

The BOJ keeps interest rates very low and goes against a global trend toward tightening.

On Friday, the Bank of Japan kept its ultra-low interest rates and continued to give dovish guidance. This made it even more clear that it is different from other central banks around the world, which are tightening monetary policy as fears of a recession dampen hopes for a strong recovery.

But the central bank changed its price predictions through 2024 to be higher and warned that risks were more likely to go up than down. This was in response to signs that inflationary pressure was growing.

Related: Japan govt urges BOJ to be vigilant to market swings-stimulus draught

In a quarterly report, the BOJ said, “The job market will continue to get tighter, which will gradually put more pressure on wages.”

“Accelerating underlying inflation is expected to heighten medium-and long-term inflation expectations … and lead to sustained price rises accompanied by wage gains,” it said.

As expected, the BOJ maintained its -0.1% short-term interest rate target and pledged to keep the 10-year bond yield around 0%.

The central bank also maintained its dovish guidance, projecting that short-and long-term rates will remain at “present or lower levels.”

After the central bank’s decision, the yen fell about 0.4% to a session low of 146.90 per dollar, but it later made up the loss to make a small gain. It was last worth 146.10 dollars, or 0.13 percent more.

After the BOJ decided to keep policy the same, the yield on Japan’s benchmark 10-year bond fell to its lowest level in almost four weeks.

Kyohei Morita, chief economist at Nomura Securities, said, “The BOJ will continue to lag behind the U.S. and Europe in tightening monetary policy.”

“In fact, it won’t be able to raise rates until at least April 2024, when the next fiscal year starts, because both the rate and amount of inflation are lower than in western economies.”

In new forecasts, the BOJ raised its estimate for core consumer inflation for the year ending March 2023 from 2.3% to 2.9%, which is higher than its 2% goal. The estimate from July was 2.3%.

It also raised its inflation predictions to 1.6% for both fiscal years 2023 and 2024. This was done because there have been signs recently that companies are actively passing on rising raw material costs to consumers.

But because of worries about a global recession, the BOJ lowered its growth predictions for fiscal years 2022 and 2023.

The announcement came after the European Central Bank decided to raise interest rates again on Thursday. The bank was trying to keep prices from going up too quickly and staying that way. It is also likely that the U.S. Federal Reserve will raise rates next week.

Even though Japan’s economy isn’t as big as some others, its core consumer inflation hit a high of 3% in September, the highest level in eight years. This was six months in a row that it was higher than the BOJ’s target of 2%.

Related: Analysis: The weak yen is pulling Japan away from the radicalism of BOJ Kuroda. 

The BOJ’s ultra-easy policy has led to sharp drops in the value of the yen. This raises the cost of importing fuel and raw materials, which are already expensive, and forces the government to step in and prop up the currency.

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