Bank of Japan Holds Rates Steady, Expects Inflation to Stay Around 2% — Update

By Megumi Fujikawa

TOKYO--The Bank of Japan left its interest-rate target unchanged Friday, a month after it made its first rate increase in 17 years.

The Japanese central bank maintained its target for the overnight call rate at a range of 0% to 0.1%.

At its previous meeting in March, the bank decided to end most of its unconventional easing measures, including negative interest rates and control over the 10-year Japanese government bond yield. It said it was more confident about achieving stable 2% inflation thanks to healthy wage growth recently.

In contrast to the Federal Reserve and the European Central Bank, which are expected to begin cutting rates as soon as this year, market watchers in Japan are debating when--or if--the BOJ might make further rate increases.

In its quarterly outlook released Friday, the BOJ expressed the view that inflation is likely to remain around the bank's 2% target over the next three years.

The bank's policy board said it expects core consumer inflation to reach 2.8% in the year ending March 2025, compared with a previous forecast of 2.4%. It projected that core consumer prices will rise 1.9% in the year ending March 2026 and the following year.

Japan's gauge of core inflation covers all prices except those of fresh food, which tend to be volatile.

The central bank also projected that the Japanese economy will expand 0.8% in the current fiscal year, compared with the 1.2% growth predicted in its previous report. It forecast 1% growth in the year ending March 2026 and the following year.

Some economists and traders expect the BOJ to raise interest rates again as early as this summer. The yen's weakness will likely add to inflationary pressures through higher costs of imports such as energy and food. The yen weakened beyond 156 against the dollar, the lowest level since May 1990.

BOJ Gov. Kazuo Ueda has said the bank would maintain easy monetary conditions for now to encourage a virtuous cycle of rising wages and prices. He has also said the bank would raise its interest-rate target if inflation rises in line with the bank's projections.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

April 26, 2024 00:04 ET (04:04 GMT)

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