The Bank of Japan kept its aggressive monetary stimulus policy unchanged after a two-day meeting through Wednesday, opting instead to monitor the effectiveness of recent tweaks amid chronically weak inflation.
BOJ Gov. Haruhiko Kuroda told a news conference that “the current powerful monetary easing measures are still necessary to achieve our 2 percent price stability target.”
The central bank’s decision-making board voted 7-2 to maintain ultralow interest rates while pledging to keep rates down “for an extended period of time.” It also kept unchanged its hefty purchases of risky assets including exchange-traded funds.
It retained its assessment that the nation’s economy is expanding moderately on the back of rising exports and business investment, as well as a gradual increase in private consumption.
This is likely to spur inflation toward the 2 percent target, the BOJ said in a statement released after the meeting.
The board decided at its previous meeting in July to introduce so-called forward guidance for interest rates and let the yield on the 10-year government bond, the benchmark for long-term rates, drift higher above its zero percent target than it had previously allowed.
Kuroda said the move was having the intended effect of addressing criticism that the central bank’s massive bond purchases were soaking up liquidity and distorting the market.
“Since the July meeting, we’ve seen trading on the bond market become more active,” he said.
At the latest meeting, the board decided to keep the zero percent target for long-term rates, as well as its minus 0.1 percent short-term rate for some funds that financial institutions keep parked at the BOJ.
BOJ Policy Board members Goshi Kataoka and Yutaka Harada, who are viewed as favoring an eased policy to lift inflation, dissented.
In its statement, the central bank cited risks to the economic outlook, including U.S. macroeconomic policies and negotiations on Britain’s exit from the European Union.
Economists fear that the Japanese economy could be hurt by steep tariffs that U.S. President Donald Trump is threatening to impose in pursuit of more favorable trade conditions, as well as a string of natural disasters that have hit the country in recent months.
Kuroda said the impact of a powerful typhoon that tore through Osaka and a massive earthquake that rocked Hokkaido appeared to be limited, but the BOJ would be on the lookout for lingering effects, including on tourism.
The world’s third-largest economy grew a robust 3 percent in annualized, inflation-adjusted terms in the April-June period, but the growth is expected to slow in the following quarter.