Bank of Japan keeps key interest rate unchanged

Tokyo: The Bank of Japan on Thursday left its key interest rate unchanged as widely expected and maintained a cautious approach due to political instability and the looming US presidential election that added concerns about the economic outlook.

In a unanimous vote, the policy board decided to maintain the uncollateralized overnight call rate at around 0.25%. This is the highest since late 2008. The Bank of Japan had ended its negative interest rate policy in March and last lifted the benchmark rate in July to the current level. So far, the bank has tightened the policy twice this year (2024).

The bank stated it needs to pay close attention to overseas economies, especially the US, and developments in global financial markets.

While the US election due next week added uncertainty around overseas economies, the ruling Liberal Democratic Party's election loss increased domestic uncertainty.

In the latest outlook for economic activity and prices, the bank mentioned that the economy is likely to keep growing at a pace above its potential growth rate.

The bank upgraded its economic growth projections for the fiscal 2025 and retained projections for the fiscal 2024 and 2026. The economy is forecast to grow 0.6% in the fiscal 2024.

Meanwhile, the growth outlook for the fiscal 2025 was raised marginally to 1.1% from 1%, and that for the fiscal 2026 was retained at 1%.

The projected inflation for the fiscal 2025 was somewhat lower due to factors such as the recent decline in crude oil and other resource prices.

Inflation was seen at 1.9%, down from 2.1% estimated in July. The inflation forecast for 2024 was maintained at 2.5% and that for 2026 at 1.9%.