The Bank of Japan kept interest rates steady at 0.25 percent on Friday, stating that the country’s economy has recovered moderately, although some weakness remains in some parts.
In its latest monetary policy statement, the central bank noted that overseas economies have grown moderately overall. Exports and industrial production have been more or less flat. With corporate profits improving, business fixed investment has been on a moderately increasing trend. In addition, Japan’s employment and income situation has improved moderately.
Japan’s private consumption has been increasing despite the impact of price rises. However, housing investment has been relatively weak, and public investment has been relatively flat.
Economic outlook
“Japan’s economy is likely to keep growing at a pace above its potential growth rate,” the statement added.
Japan’s economy grew 2.9 percent in the second quarter of 2024 and real wages rose for two straight months in July, easing fears that rising living costs will impact consumption. However, soft demand in China, slowing U.S. growth, and the yen’s recent rebound raise uncertainty.
Market volatility remains a key concern for the Bank of Japan’s policymakers after the July rate hike. Moreover, hawkish remarks from governor Kazuo Ueda triggered a surge in the yen and sharp falls in equity prices.
In its interest rate policy statement, the Bank of Japan noted that uncertainty regarding Japan’s economic activity and prices remains. Therefore, “it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” the statement added.
Read: Bank of England holds rates at 5 percent, boosting pound to over two-year highs
Exchange rate developments
The central bank also highlighted firms’ behavior which is shifting more toward raising wages and prices recently. This could impact exchange rate developments which, in turn, affects prices.
During the press conference, Ueda reiterated that the Bank of Japan will continue to adjust the degree of easing if Japan achieves the price stability outlook and the economy improves in line with the central bank’s forecast.
The Bank of Japan ended negative interest rates in March and hiked short-term rates to 0.25 percent in July in a landmark shift away from a decade-long stimulus program that aimed to raise inflation and economic growth.
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