A man walks past an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo. AP Photo/Eugene Hoshiko

Tokyo - The Bank of Japan kept its unprecedented monetary easing program unchanged on Thursday, just hours after the Federal Reserve raised its key interest rate, increasing the policy divergence between the two central banks.

The BOJ said that it would keep two key rates at current levels and maintain the pace of its asset purchases. The outcome was forecast by all 41 economists surveyed by Bloomberg.

With the economy slowly improving and bond yields under control, the BOJ is in position to hold for now. But with the Fed rate hike path putting upward pressure on yields globally, some economists have been looking for signs the BOJ may have to raise its rate targets, particularly if inflation begins to take hold in Japan.

The BOJ’s statement on Thursday indicated there is little chance of a rate increase this year, said Koichi Fujishiro, senior economist at Dai-ichi Life Research Institute.

"With the Fed not giving an indication of faster rate increases, the BOJ must have judged it’s best to signal its easing stance," Fujishiro said. "The BOJ is trying to make it crystal clear that they are easing when the Fed is going the other way to keep the yen weak."

The yen, which has fallen more against the dollar than any other currency since the U.S. election, was little changed at 113.44 at 12:44 p.m. in Tokyo.

Governor Haruhiko Kuroda will hold a news conference at 3:30 p.m.


The BOJ maintained its short-term policy rate on some bank reserves at -0.1 percent and left its target for 10-year government bond yields at around 0 percent. It kept the pace of its asset purchases unchanged at about 80 trillion yen ($700 billion) annually.

The spread between US and Japanese 10-year government bond yields this week reached the widest level since 2010, a key factor behind expectations for dollar strength. A weaker Japanese currency creates desirable inflationary pressures by raising the prices of imported goods, though it can undercut purchasing power for consumers.

The Fed’s rate hike isn’t all good news for the BOJ. Further increases in US yields would likely put more upward pressure on those in Japan, which could force the BOJ to either increase bond purchases, conduct more fixed-rate buying operations or raise its target for the yield. 

Read more: Yellen’s path for gradual rate increases.

Eleven of 41 economists surveyed by Bloomberg said they expected the BOJ to raise its target rate this year, while 25 predicted the BOJ would cut the pace of its debt buying or stop stating its target for annual purchases.

Kuroda and Deputy Governor Hiroshi Nakaso said last month that it is too early to consider raising rates because inflation remains far from the BOJ’s 2 percent target, underscoring a determination not to repeat the mistake of prematurely tightening seen in 2000 and 2006. 

Some BOJ officials are considering whether to give the market further guidance on interest rates once inflation begins picking up, according to people familiar with matter.

Price outlook

Inflation is likely to turn slightly positive due to higher energy prices, and later begin to rise toward its 2 percent target, the central bank said in its statement.

"The market view is that the BOJ’s inflation outlook is very optimistic and there’s a chance that they may downgrade it down the road," said Maiko Noguchi, a senior economist at Daiwa Securities Co. "But the timing of such action likely won’t be the next outlook report in April.”

The BOJ reiterated that Japan’s economy is on a moderate recovery trend, with exports, corporate profits and business investment all improving.

"Domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors," thanks to highly accommodative financial conditions and fiscal stimulus, it said.

"There is no need for the BOJ to make a move now," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo. "The global economy is picking up and Japanese exports are rebounding, signalling Japan’s economy is on the rise."