The Bank of Japan follows the Fed and the ECB: interest rates remain unchanged at 1.25 per cent

NEW DELHI – As widely expected, the Bank of Japan (BoJ) left its key interest rate unchanged. At the end of its usual two-day meeting, the BoJ kept rates at 1.25 per cent on Friday, though the decision was not unanimous, as one of the nine board members voted for a 25-basis-point rise.

This, combined with the fact that the central bank also revised its forecasts for inflation upwards on Friday, could pave the way for a rate rise in the coming months, perhaps as early as the end of the year. In December, the government will begin phasing out the fuel subsidies introduced months ago to cushion the impact of the energy crisis on consumers.

“A predictable decision, but one accompanied by a significant change in the Outlook Report,” explains Masahiko Loo, Chief Fixed Income Strategist at State Street in Tokyo. “The BoJ’s acknowledgement that core inflation is now hovering around 2 per cent brings its assessment closer to reality, given that traditional indicators have remained around or above the target for much of the last four years.”

The BoJ’s decision is once again in line with the announcements made in recent days by the Federal Reserve and the European Central Bank, both of which kept interest rates unchanged. Last month, all three of the world’s major central banks had raised their rates simultaneously for the first time.

In the case of the BoJ, a consecutive rate rise would have been an unprecedented event this century and could have had repercussions on the markets. Although it remains low compared with those of other G7 countries, the benchmark rate of Asia’s second-largest economy is already at a 31-year high.