BoJ Holds Ultra-Low Interest Rates, Raises 2022 Inflation Forecast By

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By Ambar Warrick– The Bank of Japan (BoJ) held interest rates at record lows as expected on Friday, and said inflation is likely to rise more in the near-term as the Japanese economy struggles with elevated raw material costs  and supply chain issues.  

The central bank maintained its target of negative 0.1% and stated in a statement that it will continue guiding the 10-year bond yield at zero. 

CPI inflation is now expected to finish the year at 3.3%, which is higher than its previous forecast of 2.3%. However, it expects inflation to fall to 1.5% in 2023-2024.

Japan’s hit an eight-year high of 3% in September, trending above the BoJ’s target 2% range for a fifth consecutive month amid rising fuel and food prices. Local businesses also had to pass the rising costs on to their customers due to rising raw material prices. 

Data released earlier Friday showed that October’s inflation reached a 33-year peak of 3.4%. This figure is a precursor for the national inflation reading for October. 

The elevated inflation figures are expected to test the BoJ’s dovish stance, particularly its view that 2022’s inflation spike will be temporary. 

The central bank stated that it will continue to make asset purchases to increase liquidity levels. However, there are still headwinds from the COVID-19 pandemic as well as global recession fears. This makes it necessary to have accommodative policies.

The move comes largely in line with the BoJ’s dovish stance, given that the central bank has kept short-term interest rates negative for over seven years. 

The bank is the only one in developed countries to maintain ultra-low interest rates. On Thursday, the bank raised rates sharply. Next week, the bank will also raise rates as both economies struggle to cope with high inflation. 

The BoJ’s dovish stance has severely dented the , with the currency recently hitting its weakest level in 32 years. Local inflation levels have also been exacerbated by the depreciation of the yen.

The BoJ decision caused a slight weakness in the yen. It fell 0.1% to 146.42 USD against the dollar. 


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