The Bank of Japan (BOJ) headquarters in Tokyo, Japan, Monday, April 25, 2022. The Bank of Japan raised its inflation forecast on Thursday, but kept interest rates ultra-low and put in Guard against risks to the economic outlook in a sign it will remain an outlier amid a global wave of monetary policy tightening by central banks.

Toru Hanai | Bloomberg | Getty Images

The Bank of Japan raised its inflation forecast on Thursday but kept interest rates ultra-low and warned of risks to a fragile economy, bolstering its position as an outlier amid a wave of tightening. world central bank policy.

The decision came hours before that of the European Central Bank, which will consider a larger-than-expected rate hike of 50 basis points to bring soaring inflation under control.

As rising fuel and commodity prices pushed Japanese inflation above its 2% target, the BOJ repeatedly said it was in no rush to withdraw its stimulus, as the slowdown in global growth darkens the outlook for a still weak economy.

“Uncertainty surrounding the Japanese economy is very high. We need to be alert to movements in financial markets and currencies, and their impact on the economy and prices,” the BOJ said in a quarterly report released. after the decision.

As widely expected, the BOJ maintained its target of -0.1% for short rates and that of 10-year bond rates around 0%.

In new quarterly projections, the council raised its core consumer inflation to 2.3% from 1.9% for the current fiscal year ending March 2023. It also raised its inflation forecast for the next year at 1.4% against 1.1%.

But the BOJ cut this fiscal year’s growth forecast to 2.4% from 2.9% and warned of the potential hit from continued supply constraints, rising commodity prices and the pandemic. .

In a post-meeting briefing, BOJ Governor Haruhiko Kuroda is expected to reiterate his resolve to keep rates ultra-low until recent cost inflation is matched by stronger wage and salary growth. demand.

However, swimming against the tide of the global wave of monetary tightening is not without cost. The policy divergence pushed the Japanese yen to its lowest level in 24 years, hurting households and retailers by increasing already rising import costs.

That impact was highlighted in data released earlier on Thursday, which showed Japan posted a trade deficit for the 11th consecutive month in June, as imports jumped 46.1% year-on-year, boosted by a yen weaker.

Recent BOJ data showed the central bank was forced to gobble up a record 16 trillion yen ($116 billion) of Japanese government bonds (JGBs) in June to defend its 0 cap. .25% for the 10-year yield.

The aggressive buying pushed the BOJ’s ownership of the bond market to more than 50%, undoing its efforts to gradually reduce its huge balance sheet and causing stress in the futures market.

Markets are focused on what Kuroda would say about the rising cost of prolonged easing and any hints he might drop on the potential trigger for policy adjustment, analysts said.