The Bank of Japan maintains its benchmark interest rate while proceeding with caution in normalizing its policy.

• At the conclusion of a two-day meeting on Friday, the Bank of Japan maintained its benchmark interest rate at approximately 0.25%, which is the highest rate since 2008.
• The BOJ is carefully considering how to transition from its ultra-easy monetary policy to a more normal approach, without causing any economic shock.

Although Reuters poll estimates align with the decision, most economists predict another rate increase by the end of the year.

The BOJ is proceeding with caution as it normalizes its monetary policy after years of an ultra-easy approach, without causing any economic shock.

The central bank of Japan stated that its economy has recovered moderately, but it acknowledged that "some weakness has been seen in part."

The economy is expected to experience growth at a rate above its potential due to a virtuous cycle of income to spending.

The 2025 fiscal year in Japan will conclude on March 31, 2026.

The Japanese government bond yields decreased by 0.4 basis points, while the yen remained nearly stable at 142.52 against the dollar. Meanwhile, the Nikkei 225, which had risen by 2%, remained unchanged following the decision.

If the economy and inflation align with the BOJ's projection, Governor Kazuo Ueda stated last month that the central bank would increase interest rates.

While most global central banks are easing policy, the BOJ's tightening stance has made it stand out as an outlier. On Thursday, the U.S. Federal Reserve cut interest rates by 50 basis points to a range of 4.75% to 5.0%.

In July, the central bank raised the key rates to 0.25% after abandoning negative interest rates in March, as it believed the economy was on track to meet the 2% inflation target.

Japan's core consumer prices index increased by 2.8% year on year, in line with Reuters estimates, while excluding fresh food and energy costs, the inflation rose by 2.0%, compared to 1.9% in the previous month.

The BOJ has the flexibility to continue tightening monetary policy due to the fourth consecutive increase in inflation.

Japan lowered its second-quarter GDP growth forecast to an annualized 2.9% from the previous quarter, falling short of the government's initial estimate and missing the 3.2% growth forecast in a Reuters poll.