Japan’s central bank holds monetary policy rates, trims inflation forecasts

The Bank of Japan (BOJ) kept its monetary policy steady on Wednesday and revised its inflation forecasts lower amid a volatile global trade backdrop.

In a widely expected policy move, the BOJ maintain its guidance for short-term interest rates at negative 0.1%, and long-term interest rates at around 0%.

The BOJ also shaved its inflation target for March 2021 to 1.5%, from 2%. Inflation forecast for the fiscal year ending March 2019 was lowered to 0.9%, from the earlier 1.1%.

In the report, the BOJ voiced concerns on the ultra-low rates that were hurting the bank’s profits, saying that the downward pressures in an extended period could “destabilize the financial system”. The bank added that it is paying close attention to the issue.

Normalizing its policy is off the table for now, said analysts, as the elevated external risks to growth is likely to see BOJ keep its policy steady.

In a report issued on Wednesday, BOJ said Japan’s economy is expected to continue to grow at a pace above its potential for fiscal year 2018. From 2019 to 2020, the economy is expected to continue to grow, with support coming from external demand, albeit at a slower pace due to the cyclical slowdown in business fixed investment and effects from Japan’s consumption tax hike.

The Japanese Yen changed hands at 113.24 against the dollar following the policy call from BOJ. At 8am coordinated universal time (UTC), the Yen was at 113.18.

Manufacturing slows down

In a separate statement issued by the Ministry of Economy, Trade and Industry on Wednesday, Japan’s industrial output fell 1.1% in September from a month ago, worse than the 0.3% fall economists had expected. Output for cars, car parts, and robots, fell.

The month of September saw the country hit by natural disasters including earthquakes which affected production. The ongoing trade war between China and the United States also weighed on exports.