Japan’s central bank announced on Tuesday, July 31, that it will maintain the current extremely low levels of short- and long-term interest rates for an “extended period of time.”
The short-term interest rate, which is measured by the interest rate applied to current accounts held by financial institutions at the Bank of Japan (BOJ), will be -0.1 percent. Ten-year Japanese government bond yields, which is an indicator of long-term interest rate, will remain at around zero percent, the BOJ said in a statement.
But the central bank will allow for some fluctuation in the long-term interest rate depending on the situation in economic activity and prices. It also set the volume of annual government bond purchase at 80 trillion yen ($721 billion).
The Policy Board of the BOJ also downgraded the inflation rate forecast for 2018, 2019, and 2020. The estimated inflation rate for fiscal year 2018 was revised downward from 1.3 percent to 1.1 percent.
The central bank’s unchanged target of inflation rate is 2 percent.
The BOJ grounded the policy announcement on the current economic situation and the scheduled consumption tax hike in October 2019.
Japan plans to increase the consumption tax rate from current 8 percent to 10 percent in 2019, The Asahi Shimbun reported.
The dollar jumped against the yen—about 0.72 percent higher—after the BOJ announcement. “Clearly the yen is struggling as a result of the Bank of Japan announcement overnight,” said Omer Esiner, the chief market analyst at Commonwealth Foreign Exchange in Washington.
Reuters contributed to this report.