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Bank of Japan maintains ultra-low rates as US Fed tightens policy

Bank of Japan maintains ultra-low rates as US Fed tightens policy

The Bank of Japan (BOJ) has reportedly decided to maintain its ultra-low interest rates and equally dovish policy guidance. The move comes amid the bank’s efforts to reassure markets that it would continue to move against the grain and not follow the global trend of central banks tightening their monetary policy to tackle inflation.

As per reports, the bank’s decision comes after the US Federal Reserve increased its interest rate by 0.75 percentage points for the third time in a row, on Wednesday, 21st September, while hinting towards further hikes, highlighting the country’s resolve to continue fighting against inflation.

As expected, the BOJ will not change its -0.1% target of short-term interest rates and 0% for the ten-year government bond yield, decided upon a unanimous vote.

This move makes BOJ an exception in the global tide of central banks taking back stimulus to curb rising inflation. The bank would likely become one of the world’s last major monetary authority that has a negative policy rate.

Markets were keeping a watch on whether the bank will exhibit initial signs of changing the approach by adjusting its pledge to keep the rates at the current or lower level and increase stimulus to back the economy.

Last month, the country’s core consumer inflation rose to 2.8%, surpassing the central bank’s target of 2% for the fifth time in a row amid increasing price pressure from raw materials and the declining yen.

Haruhiko Kuroda, governor of BOJ, ruled out the possibility of a near-term stimulus withdrawal, pointing out that the wages need to increase further so the bank’s target inflation is obtained sustainably.

Kuroda's dovish message succeeded in weakening the yen, working against the Japanese government’s efforts to slow down the yen’s decline via verbal threats of yen-buying intervention.

Although initially accepted for boosting exports, a weak yen is now hurting the country’s policymakers as it is driving up the import costs of the already expensive raw materials and fuel.

Japan’s economy expanded at an annual rate of 3.5% in the second quarter, but its recovery has been rather bumpy amid resurging COVID-19 infections, increasing raw material costs, and supply chain disruptions. 

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Meghna Singh

An English Literature graduate, Meghna Singh ventured into the profession of content development to incorporate her knack for writing articles across verticals including technology, healthcare, business, and alike for News Origins and Newsorigins. She has also completed her MBA in Tourism and worked as a content creator in the field of product development.