Bank of Japan leaves key interest rate unchanged

TOKYO

The Bank of Japan left interest rates unchanged on Sept. 20, after a decision to hike them in July pushed the yen sharply higher and fuelled turmoil across world markets.

Two days after the U.S. Federal Reserve slashed rates for the first time since the start of the pandemic, the BoJ's stasis came as data showed inflation in the world's fourth-largest economy picked up as expected in August.

Japanese central bank officials said borrowing costs would be left at 0.25 percent, a policy decision widely predicted after the fallout from the previous hike.

The BoJ was for a long time an outlier among major central banks, sticking to an ultra-loose monetary policy in an attempt to see demand-driven inflation of 2 percent fuelled by wage increases.

The BoJ raised borrowing costs in March for the first time since 2007 and again in July, signalling that more were on the cards.

That move, which surprised investors, came on the same day the Fed indicated it was ready to start cutting, and was followed by a big miss on U.S. jobs creation.

This sent markets into a tailspin on U.S. recession worries and as traders unwound huge "carry trades" in which they used the yen to buy higher-yielding assets such as stocks.

The yen rocketed and the global stocks sell-off on Aug. 5 saw Tokyo's Nikkei 225 dive more than 12 percent -- its worst day since Black Monday in 1987.

Japanese stocks have since recovered but remain volatile.

The sharp slide prompted the BoJ's deputy governor Shinichi Uchida to signal that there would be no more interest rate hikes until financial markets had stabilised.

But around 70 percent of economists surveyed by Bloomberg expect another increase by December.