Bank of Japan keeps rates at 0.25%

September 20, 2024 (MLN): The Bank of Japan (BoJ) held its key short-term interest rate at 0.25%, it said in a statement on Friday.

Japan's economy is recovering moderately, although some areas show signs of weakness. Overseas economies are generally growing moderately. Exports and industrial production are more or less flat. With improving corporate profits, capital investment is on a moderate upward trend.

The employment and income environment is improving moderately. Private consumption is on a moderate upward trend, despite the effects of rising prices. Housing investment is showing some weakness. Public investment is more or less flat.

Japan's financial environment is in an accommodative state. Looking at the year-on-year change in consumer prices (excluding fresh food), the impact of price pass-through from the past rise in import prices is weakening, but the gradual increase in service prices due to wage increases and other factors continues, and the current rate is in the high 2.5% range. Inflation expectations are rising moderately.

As for the outlook for Japan's economy, BoJ said it is expected that it will continue to grow at a rate above its potential growth rate, as a virtuous cycle from income to spending will gradually strengthen, mainly against the backdrop of accommodative financial conditions, with overseas economies continuing to grow moderately.

As for consumer prices (excluding fresh food), the effects of price pass-through due to the past increase in import prices will fade, while the backlash from government policies and other factors is likely to push up the year-on-year rate of change toward next fiscal year, it noted.

Meanwhile, the bank said that the underlying rate of change in the consumer price index is expected to rise gradually, as the virtuous cycle between funds and prices continues to strengthen and medium- to long-term inflation expectations rise, in addition to the improvement in the output gap at the macro level.

BoJ expects that the economy will remain at a level broadly consistent with the price stability target during the second half of the projection period of the Outlook Report.

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