The head office of the Bank of Japan (top C) is seen in Tokyo on December 19, 2023.
Kazuhiro Nogi Afp | Getty Images
Japan’s central bank has raised its benchmark interest rate to “around 0.25%” from a previous range of 0% to 0.1% and outlined plans to scale back its bond-buying program.
But the Bank of Japan said it expected real interest rates to remain “very negative,” adding that “accommodative financial conditions will continue to support economic activity.”
The central bank forecasts that the core inflation rate – which reduces the price of fresh food – will reach 2.5% by the end of fiscal year 2024, and “around 2%” for fiscal years 2025 and 2026.
The BOJ said it will continue to raise policy interest rates and adjust the rate of monetary accommodation, assuming the economic outlook has materialized.
Japan’s fiscal year runs from April 1 to March 31, meaning the 2024 fiscal year will end in March 2025.
The Bank of Japan said it would reduce its monthly purchases of Japanese government bonds to about 3 trillion yen ($19.64 billion) a month from January to March 2026. In a March release, the bank said it would buy JGBs by about 6 trillion yen a month.
The amount is currently planned to be cut by about 400 billion yen per quarter, the BOJ added, which will reduce total JGB holdings by 7% to 8% in fiscal year 2026. The BOJ’s JGB holdings currently stand at 579 trillion yen as of July 19, according to CNBC calculations.
However, the central bank has confirmed that it will be flexible in this plan and will conduct an interim assessment of the reduction plan at its June 2025 meeting.
“The bank will make an agile response by, for example, increasing the number of JGB purchases,” and added that “it is prepared to amend the plan in MPMs, if deemed necessary.”
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