Overnight interest rates will stay at -0.1%. The BoJ also kept its yield curve controls steady, following its decision in October to revise its policy and permit yields on 10-year government bonds to increase beyond 1%.

The BoJ is the only major central bank to have interest rates below zero, as it attempts to pull the country out of decades of deflation.

Bank of Japan keeps interest rates negative as it sets out flexible yield curve control plans

In a statement, it said it would “continue to maintain the stability of financing, mainly of firms, and financial markets and will not hesitate to take additional easing measures if necessary”. 

But any pullback from its loose monetary policy by the BoJ could have a significant impact on international bond and currency markets.

The Bank of Japan will tighten policy – but not by enough

The Japanese currency fell on the latest announcement from the BoJ and is still down 9.5% this year against the dollar, though it has bounced back from historic lows over the past month on expectations of policy tightening. 

Core inflation in Japan has breached the BoJ’s 2% target since April 2022, but this is largely down to higher costs of imported goods.