TOKYO — The Bank of Japan on Thursday kept its ultralow interest rates in place, staying away from a global wave of monetary tightening despite growing inflation.
The decision confirms a further policy divergence between the U.S. and Japan, adding downward pressure on the yen. The yen fell briefly to a fresh 24-year low of more than 145 against the dollar after the BOJ’s announcement. On Wednesday, the Federal Reserve raised interest rates by 0.75 percentage points and signaled additional large increases.
The Bank of Japan on Thursday maintained short-term interest rates at minus 0.1% and its target for the 10-year Japanese government bond yield at around zero.
Consumer inflation in Japan reached 3% in August, exceeding the bank’s 2% target for the fifth straight month. It is still much milder than in the U.S., where inflation remains above 8%.
The yen’s recent weakness has inflated import prices because Japan depends largely on imports for food and energy. Their prices are already rising due to the Ukraine war and global supply shortages.
Japanese officials have stepped up verbal intervention on the currency this month. Finance Minister Shunichi Suzuki said Tokyo wasn’t ruling out any steps to stop the yen’s fall, including government intervention to sell dollars and buy yen.
However, BOJ Gov. Haruhiko Kuroda has said he doesn’t see monetary tightening as a good way to stabilize the yen. BOJ officials believe Japan’s current inflation is unlikely to last long. Kuroda recently said inflation is likely to go back down to 1.5% in 2023.
Kuroda and other policy board members have said Japan needs easy monetary policy because its economy is still recovering from the pandemic and wage growth remains sluggish.
