Bank of Japan keeps rates unchanged; lifts inflation forecast

The Bank of Japan kept interest rates unchanged on Thursday as expected, but lifted its inflation forecast and cut growth estimates.

The Bank maintained its -0.1% target for short-term rates. It said in a statement: "Uncertainty surrounding Japan’s economy is very high. We must be vigilant to financial and currency market moves, as well as their impact on the economy and prices."

The BoJ lifted its core consumer inflation forecast for FY2022 to 2.3% from 1.9% and for FY2023 to 1.4% from 1.1%.

It also cut its growth forecast for 2022 to 2.4% from 2.9% and for next year to 2.0% from 1.9%.

ING said: "Although the BoJ has gradually downgraded its growth forecast, the revised outlook still appears to be too optimistic amid growing concerns about a recession in the US and EU.

"ING expects GDP to grow by 0.8% in 2022 and 1.2% in 2023. Already, most monthly data suggests that the second-quarter GDP rebound is likely to be limited as pent-up demand has been suppressed by high inflation, and exports have been hit by China’s lockdown measures.

"Also, the renewed increase in Covid-19 cases is another downside factor to short-term growth. For example, the government temporarily suspended its travel voucher programme in July."