-- Citing heightened inflation risks but also a slowing economy, in a mixed decision the Bank of Japan kept its key interest rate unchanged, the central bank disclosed Tuesday.
The Bank of Japan held its short-term policy rate at 0.75% by a 6-3 vote, leaving the rate unchanged since last December.
Bank of Japan Governor Kazuo Ueda said policymakers need more time to assess how the Persian Gulf war and the closure of the Strait of Hormuz will affect prices and the economy.
Demonstrating the impact of higher oil prices, the central bank forecast that the nation's consumer price index-core (CPI-core), that strips out fresh food prices, will rise 2.8% in fiscal 2026 (started April 1), up from the 1.9% estimate in January.
In addition, the Bank of Japan lowered its forecast for gross domestic product (GDP) growth to 0.5% for the fiscal year, down from 1% in its the previous outlook.
Until recent years, the Bank of Japan has struggled not with inflation but near-deflation, and also extended sluggish economic growth, resulting in what some critics termed "lost decades."
In recent seasons, central bank officials have reiterated they want to keep demand for labor strong enough that real wages rise, thus allowing more consumption and overall economic expansion.
Until today's forecast, the Bank of Japan also issued sanguine inflation forward estimate, that the CPI-core would recede to within the bank's 2% target in fiscal 2026.
In fact, in March, Japan logged a modest 1.8% increase in the CPI-core on year, reported the Statistics Bureau.
But going forward, with higher oil prices, and the weakest yen vs. the US dollar in 35 years, the Bank of Japan is now forecasting that inflation will rise above the central bank's target.
Japan's central bank next meets on April 27-28.
"We continue to believe there's a chance that the BoJ may hike on 28 April," said ING Think, an rm of the Dutch investment house. "Board members' concerns about higher inflation expectations are likely to increase as real interest rates remain deeply negative."