TOKYO : The Bank of Japan is expected to maintain ultra-low interest rates on Thursday and signal a cautious approach to rolling back its massive monetary stimulus, as political uncertainty and jittery markets cloud the outlook.
The ruling coalition’s loss of a majority in a weekend election has heightened concerns about policy paralysis, raising the hurdle for additional rate hikes, analysts say.
The BOJ is likely in no rush to push up borrowing costs with inflation showing few signs of spiking and Japan’s economic recovery fragile.
But sounding too dovish on the policy outlook could give speculators an excuse to sell the yen and fuel unwelcome falls in the currency.
The conflicting demands on policy could keep the BOJ from issuing clear signals on the timing and pace of further rate hikes, particularly ahead of the U.S. presidential election on Nov. 5.
“The domestic political turmoil is negative for economic activity and could be headwinds for the BOJ’s rate-hike plans,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.
“But the BOJ may not afford to wait too long if yen falls accelerate and re-ignite upside inflationary risks,” she said.
At the two-day meeting ending on Thursday, the BOJ is widely expected to keep short-term interest rates steady at 0.25 per cent.
In a quarterly report to be released after the meeting, the board is seen making no major changes to its projection that inflation will move around 2 per cent through early 2027.
Markets will instead focus on the BOJ’s view on risks as Governor Kazuo Ueda has highlighted unstable markets and U.S. recession fears as key reasons to go slow in its rate-hike path.
After meeting his counterparts from major economies in Washington, Ueda offered a cautiously upbeat view on the outlook for the global economy. He is expected to hold a news conference at