TOKYO : The Bank of Japan is set to maintain ultra-low interest rates on Thursday and hold off from major tweaks to its dovish policy guidance, as rising raw material costs force it to focus on underpinning a fragile economic recovery.
Prospects of aggressive Fed tightening, which would widen the divergence between U.S. and Japanese interest rates, have pushed the yen to two-decade lows against the dollar. "The output gap in Japan is negative, and there is still a long way to go to achieve the 2 per cent target in a stable manner," BOJ Governor Haruhiko Kuroda said in a speech on Friday.
In new quarterly forecasts due after Thursday's meeting, the central bank is expected to raise its inflation forecast for this fiscal year to near 2 per cent reflect rising fuel costs. Under the current guidance, the BOJ says it"won't hesitate to take additional easing steps," and expects short- and long-term policy rates to"remain at their present or lower levels."