Central Banks

Japan's central bank leaves its monetary policy unchanged

Key Points
  • The Bank of Japan (BOJ) kept its policy rate, 10-year government bond yield target unchanged
  • The BOJ voted 8-1 to stand pat on rates with Goushi Kataoka as the sole dissenting voice
  • The central bank said the economy is growing moderately and inflation, while below its target, will likely continue to rise
A man rides a bicycle past the Bank of Japan building in Tokyo.
Yuriko Nakao | Reuters

The Bank of Japan said Thursday it is holding its monetary policy steady, as inflation is still far from the targeted 2 percent despite a growing economy.

At the end of its two-day policy meeting, the central bank said it is maintaining its short-term interest rate at minus 0.1 percent and the target for the 10-year government bond yield at zero percent.

"Japan's economy is expanding moderately," the BOJ said in a statement.

The decision to keep monetary policy unchanged was reached by a 8 to 1 vote, with board member Goushi Kataoka as the sole dissenting voice.

Kataoka argued that the likelihood of inflation reaching its 2 percent target is low and the central bank should commit to additional easing if progress to achieve the inflation target is delayed.

But the BOJ said in its statement that inflation is "likely to continue on an uptrend" on the back of an improvement in the output gap and a rise in medium- to long-term inflation expectations.

Japan's core consumer price index rose 0.8 percent in October from a year ago, following a 0.7 percent increase in September. Its economy, the third-largest in the world, beat estimates to grow at an annualized 2.5 percent in the three months to September.

Analysts were not surprised by the central bank's decision on Thursday, but had differing views on how long Japan will keep its loose monetary stance. A poll by Reuters found that most economists expect the central bank to withdraw stimulus from 2018.

Marcel Thieliant, senior Japan economist from Capital Economics, said there were concerns about the sustainability of maintaining a loose monetary policy for a prolonged period. He said low rates may depress bank profits, weaken banks' capital ratios and reduce lending.

Despite that, Thieliant said he expects Japan to leave policy unchanged at least until the end of 2019.

"We don't think that these concerns are valid and we think that weak price pressures will continue to dominate the outlook for monetary policy," he wrote in a note after the release of BOJ's latest monetary policy statement.

BOJ Governor Haruhiko Kuroda will hold a news conference at 3:30 p.m. local time (0630 GMT) to explain the policy decision.