By Megumi Fujikawa


THE DECISION: The Bank of Japan, as widely expected, maintained its policy rate at 0.25%, keeping it at the level reached after the last hike in July. The result was well-anticipated. BOJ Gov. Kazuo Ueda and other officials have expressed concerns about the outlook for overseas economies and suggested that the bank will proceed cautiously with further rate increases.


INFLATION OUTLOOK: The BOJ's policy board expects inflation to stay near its 2% target in coming years. It expects core consumer prices excluding volatile fresh food costs to rise 2.5% in the year ending March 2025 and 1.9% in each of the following two years, according to its quarterly outlook report. There are risks that could push up the inflation outlook for the next fiscal year, the bank said

The bank said it will pay extra attention to the potential impact of currency moves on its outlook. "With firms' behavior shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices," the bank said in the report.


GROWTH OUTLOOK: The BOJ policy board also expects mild economic growth to continue, projecting an expansion of around 1% both in the year ending in March 2026 and the following year.

"The virtuous cycle between wages and prices is projected to keep intensifying through achievement of wage increases that reflect price rises and through a pass-through of wage increases to selling prices," the bank said. Still, uncertainties surrounding the Japanese economy remain high, including developments in the overseas economies and corporate behavior in Japan, it said.


THE MARKET REACTION:

--The yen briefly rose to around 152.80 against the dollar after the BOJ's decision from 153.40 shortly prior.

--The yield on benchmark 10-year Japanese government bonds fell 1.5 basis points to 0.935%.

--Japanese shares extended their losses in the afternoon after having started the day lower.


WHAT'S NEXT: Many economists expect the Japanese central bank to tighten policy again soon as policymakers have pledged to seek more interest-rate increases if the economy and prices grow in line with its forecasts. The yen's recent weakness has also heightened fears over higher import costs.

Focus now turns to Ueda's upcoming press conference this afternoon. Markets will be watching to see if the governor drops any hints about the timing of the next rate hike.

While an outright signal seems unlikely, Ueda could make subtle shifts to his cautious stance to prepare financial markets for the central bank's next policy move. Market participants have called for better communication from BOJ policymakers after its last rate hike triggered a sharp drop in the stock market.


Write to Megumi Fujikawa at megumi.fujikawa@wsj.com


(END) Dow Jones Newswires

10-31-24 0107ET