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BANGKOK (AP) — The Bank of Japan maintained its long-standing loose credit policy on Tuesday, saying it would monitor price and wage increases before raising its benchmark negative interest rate.
The BoJ’s policy resolution was widely expected, but investors and analysts are tiptoeing towards the upgrade due to price increases that have left inflation above its 2% target.
The U. S. dollar appreciated against the Japanese yen and inventories rose following Tuesday’s decision.
The -0. 1% benchmark rate aims to inspire banks to lend more and businesses and consumers to borrow more to stimulate the economy, the world’s third-largest. The central bank has also bought trillions of dollars in government bonds and other assets as a component of its strategy to inject more liquidity to spice up the expansion as Japan’s population shrinks and ages.
Inflation has risen in Japan, albeit at a much slower pace than in the United States and other primary economies, peaking recently at around 3%. At the same time, the U. S. dollar appreciated against the Japanese yen as rates were raised to counter inflation. This has undermined the strength of the yen, increasing the prices of the force and other commodities.
Bank of Japan Governor Kazuo Ueda was cautious about rate hikes, saying wage increases were lagging behind emerging costs and that the inflation target would likely not be maintained.
The central bank’s policy statement said that housing investment remained weak and government spending was flat.
“With incredibly high uncertainties surrounding domestic and external economies and economic markets, the bank will patiently continue to ease economic policy,” the Bank of Japan said in a statement.
The central bank is reviewing its strategy, but “will not rush to exit” its current stance of “quantitative easing,” Oxford Economics said in a research note. “The exit will be delicate, requiring many years and comprehensive policy measures in conjunction with the government to ensure a smooth and stable process,” it said.