Bank of Japan keeps interest rates unchanged, raises inflation outlook

The Bank of Japan maintains the benchmark interest rate unchanged while raising the inflation outlook. The bank is closely monitoring the impact of last month's rate hike on the economy and is waiting for the outcome of early elections that could affect the country's spending plans. The bank announced on Friday that it would maintain the policy rate at 0.75%, in line with the expectations of all surveyed economists. This keeps borrowing costs at their highest level in thirty years. Policy board member Takada Shozo voted in favor of a rate hike, while the rest of the members supported keeping rates steady. In the latest quarterly outlook, the bank raised four out of six inflation forecasts and reiterated that borrowing costs would increase if the outlook materializes. Prime Minister Naoto Kan's recent campaign promise to temporarily suspend the consumption tax on food has heightened concerns about Japan's fiscal situation, leading to intense market volatility. The latest outlook indicates that the Bank of Japan's Policy Board, led by Governor Ueda Kazuo, is moving towards another rate hike after last month's move to the highest level since 1995. When considering the timing of the next action, the bank will need to weigh the impact of the December rate hike on prices and the economy, the inflation effects of the continued weakening of the yen, and the results of the February 8th elections. Ueda Kazuo will outline the considerations behind this policy decision, possible interest rate paths, and views on the inflation outlook at a later press conference. The press conference usually begins at 3:30 PM local time. His statements may affect the exchange rate of the yen, and any comments on the recent surge in long-term yields will also be closely watched by the market.