BOJ Keeps Rates Unchanged, Revises Up Economy Outlook

The Bank of Japan, or BoJ, on Thursday, kept interest rates steady at 0.1 percent, in line with analysts’ expectations, as the country’s economy showed modest signs of a sustained recovery. The BoJ also maintained that it will continue to increase the monetary base at an annual pace of about 60 trillion to 70 trillion yen ($600 billion to $700 billion) through money market operations.

BoJ, in a statement, said that the economy is witnessing moderate recovery with steady improvement in key indicators such as employment, housing, exports, and private and public investments, aided by growth in overseas economies.

“Reflecting all these developments in demand both at home and abroad, industrial production is increasing moderately. Meanwhile, financial conditions are accommodative,” the bank said in a statement. “Japan’s economy is expected to continue a moderate recovery.”

The optimistic posture adopted by the BoJ is expected to influence Prime Minister Shinzo Abe's decision about a sales-tax hike, which could go into effect from next spring. And, the decision to keep rates steady comes at a time when the nation is debating a proposal to increase the consumption tax from 5 percent to 8 percent next April. Abe is expected to make a decision on revising the tax by early October.

The Bank, in its statement, also reiterated its commitment to achieve a 2 percent inflation rate in two years.

“The year-on-year rate change in the consumer price index (CPI, all items less fresh food) is in the range of 0.5-1.0 percent. Inflation expectations appear to be rising on the whole,” the statement said.

After the announcement, the Nikkei stock index was flat and the yen was little changed at 99.7 against the dollar, at 12:07 a.m. EDT.