The Bank of Japan kept interest rates steady on Thursday, but warned that rising oil costs from the Middle East conflict could fuel underlying inflation, signalling caution over mounting price pressures.

At the two-day meeting ending on Thursday, the central bank left unchanged its short-term policy rate at 0.75 percent.

Hawkish board member Hajime Takata repeated an unsuccessful proposal he made in January to push up rates to one percent.

Investors are focusing on how bank governor Kazuo Ueda, at his post-meeting briefing, will frame the balance between the need to support a shock-hit economy and avoid being behind the curve on inflation.

While officials see the consumer price index easing below two percent thanks to the easing cost of food including rice – and partly thanks to government measures – they warned "the rate of increase is then expected to [see] upward pressure, affected by the recent rise in crude oil prices".

Public discontent over rising prices largely contributed to the downfall of former prime minister Shigeru Ishiba, whom Sanae Takaichi succeeded in October vowing to address the issue and shore up the world's fourth-largest economy.

The Bank of Japan began hiking rates from below zero in 2024, as figures signalled an end to the country's "lost decades" of stagnation.

The move to stay with the monetary status quo was widely anticipated by analysts. (Reuters/AFP)


Edited by Tony Sabine