Key facts
- The Bank of Japan maintained its short-term policy rate at 1%.
- Board member Hajime Takata dissented, calling for a rate hike to 1.25%.
- The Bank of England held its key interest rate at 3.75% via a 6-3 vote.
- The Bank of Japan lowered its inflation forecast for the current fiscal year.
- The yen weakened to the 160 range against the dollar.
- Japan's foreign exchange reserve account logged a $31 billion surplus in FY2025.
- The dollar weakened against the yen on Thursday.
- The United States provided support for Japan's yen-buying intervention.
The Bank of Japan (BOJ) has decided to maintain its short-term policy rate at 1%. However, the central bank signaled its intention to continue raising borrowing costs in response to inflationary pressures. This decision was not unanimous, as board member Hajime Takata dissented, proposing a rate hike to 1.25% to address inflation risks. Concurrently, the Bank of England held its key interest rate at 3.75% through a 6-3 vote, citing concerns about rising energy prices and potential second-round inflation effects. The BOJ is also expected to keep its rates steady for now but has indicated a hawkish stance, preparing for future increases due to mounting price pressures.
Following the BOJ's announcement, the Japanese yen experienced further weakening, trading in the 160 range against the dollar. This decline reversed an earlier surge attributed to potential Japanese currency intervention. Persistent commercial demand for dollars emerged as trading commenced in Japan. Earlier in the week, the dollar had weakened against the yen, reaching a one-week high for the Japanese currency, occurring before a key U.S. inflation report and following the Federal Reserve's policy meeting. Japan's special account for foreign exchange reserves recorded a surplus of $31 billion in fiscal year 2025, marking the second-highest on record. A weaker yen boosted the yen returns on foreign assets, which helped offset interest costs on yen-denominated financing bills.
The Bank of Japan also lowered its inflation forecast for the current fiscal year. This move comes amidst challenges posed by rising crude oil prices and a persistently weak yen. The central bank's policy decisions are navigating a complex economic landscape characterized by global inflation concerns and currency fluctuations. The United States has provided support to Japan's efforts, including yen-buying intervention.