By Leika Kihara
TOKYO (Reuters) – The Bank of Japan kept ultra-low interest rates on Friday and maintained its dovish guidance, cementing its status as an outlier among global central banks tightening monetary policy, as recession fears dampen prospects for a solid recovery.
In fresh quarterly projections, the BOJ revised up its core consumer inflation forecast to 2.9% for the current fiscal year ending in March 2023, from a 2.3% estimate made in July and well exceeding its 2% target.
It also upgraded its inflation forecast for fiscal 2023 to 1.6% from 1.4%, nodding to recent growing signs that companies are actively passing on rising raw material costs to households.
Despite the higher inflation outlook, the central bank maintained its policy guidance that its short- and long-term interest rate targets will remain at “present or lower levels.”
As widely expected, the BOJ also left unchanged its -0.1% target for short-term interest rates and a pledge to guide the 10-year bond yield around 0%.
“Risks to the economic outlook are skewed to the downside, while those to the price outlook are skewed to the upside,” the BOJ said in a report on the quarterly projections.
The announcement came in the wake of the European Central Bank’s decision to raise interest rates again on Thursday, continuing its efforts to prevent rapid price growth from becoming entrenched. The U.S. Federal Reserve is also expected to hike rates next week.
Investor attention will focus on BOJ Governor Haruhiko Kuroda’s post-meeting briefing for clues on the timing of an eventual exit from the ultra-loose policy.
While more modest than other major economies, Japan’s core consumer inflation hit an eight-year high of 3% in September, exceeding the BOJ’s 2% target for six straight months.
Core consumer inflation in Japan’s capital Tokyo, considered a leading indicator of nationwide figures, hit a 33-year high of 3.4% in October, data showed on Friday, in a sign of broadening price pressure.
Kuroda has stressed the need to maintain ultra-loose policy on the view the recent cost-push inflation will prove temporary.
The BOJ’s ultra-easy policy has helped trigger sharp yen declines that inflate the cost of importing already expensive fuel and raw material, prompting the government to intervene in the market to prop up the currency.
(Reporting by Leika Kihara; Editing by Sam Holmes)
