News about Japan

[Tom MoodyParticipant]

BOJ keeps interest rates unchanged, weighs July hike impact

The Bank of Japan left its key interest rate steady at around 0.25 percent as widely expected at the end of a two-day policy meeting Friday, as it continued to assess the impact of its previous rate hike two months ago.

The central bank stood pat after it raised the target for the overnight call rate to that level in July from a range of zero to 0.1 percent in a step that added to evidence it is dialing back its decade-long unorthodox monetary easing amid signs of an economic recovery.

“Japan’s economy has recovered moderately, although some weakness has been seen in part,” the BOJ said in a post-meeting statement. Its board members made the latest decision in a unanimous vote.

BOJ Governor Kazuo Ueda will meet the press later in the day.

In the run-up to the meeting, some policymakers expressed the view that financial markets remain unstable following the bank’s rate decision in July, signaling cautiousness about immediately lifting borrowing costs further.

The July decision, together with follow-up remarks by Ueda about a possible further rate hike within the year, caught market participants off guard and led the Nikkei stock index to mark its largest single-day fall in early August.

Following the rapid market moves, BOJ Deputy Governor Shinichi Uchida said the bank would not raise rates further until markets regain calm, in an apparent bid to reassure investors.

The BOJ entering a cycle of less accommodative policy amid the recent historic depreciation of the yen contrasts with other major central banks, which have started loosening their monetary grip to support economic growth.

The U.S. Federal Reserve on Wednesday cut its key rate for the first time in over four years, joining the European Central Bank and the Bank of England, among major banks, in monetary easing.

The opposing trends in Japan and other major economies in monetary policy are expected to narrow the interest rate gap between them, potentially supporting the yen and triggering a significant rebound following years of depreciation.

The BOJ’s cautiousness toward additional rate hikes highlights the tough balance it must strike between normalizing policy after years of unorthodox monetary easing measures and minimizing negative impacts on the economy in the process of doing so.

Friday’s decision also came as the ruling Liberal Democratic Party prepares to elect its new president next Friday to succeed Fumio Kishida as Japan’s prime minister.

The BOJ ended its negative rate policy in March in its first rate hike in 17 years.

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