Bank of Japan keeps negative interest rates unchanged

The Bank of Japan has kept short-term interest rates at -0.1% as it continues to encourage banks to lend more and kickstart an economic recovery, but said it is keeping a close eye on price and wage movements before it considers tightening monetary policy.

Policymakers voted unanimously to keep rates unchanged, as widely expected by financial markets, and said they would continue to purchase government bonds without setting an upper limit so that 10-year bond yields remains around 0% with an upper bound of 1.0%.

Inflation is currently running above the BoJ's 2% target, but remains markedly lower than in other countries. However, wage increases have not caught up with price rises.

Inflation excluding food is expected to stay above 2% through 2024, due to the pass-through to consumer prices of historic import price increases, but is forecast to decelerate as those factors dissipate. Underlying inflation is likely to increase gradually toward achieving the price stability target, "as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise", the Bank said.

The central bank acknowledged that the economy had "recovered moderately" but exports and industrial production had been affected by economic slowdowns overseas. Corporate profits, business fixed investment and labour markets have improved, but housing investment and public investment has been weak.

"With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions," the BoJ said. "By doing so, it will aim to achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases."

The central bank said it would continue with quantitative and qualitative easing with yield curve control to sustainably bring inflation above the 2% target, but "will not hesitate to take additional easing measures if necessary".