The Bank of Japan decided to maintain its policy rate at 0.25% during its recent monetary policy meeting. This decision follows a similar stance in September. Analysts attribute this move to upcoming uncertainties, including the U.S. elections and volatile financial markets.
Japan experienced eased inflation pressures after four consecutive months of rising rates. The latest Consumer Price Index (CPI) for September showed a year-on-year increase of 2.5%, a decrease of 0.5 percentage points from August. Core CPI rose by 2.4%, down 0.4 percentage points from the previous month.
In its economic outlook, the Bank of Japan maintained its core CPI growth forecast for 2024 at 2.5%, adjusted the 2025 forecast from 2.1% to 1.9%, and kept the 2026 forecast at 1.9%. The bank emphasized that any future monetary tightening would focus on risks to the fragile economic recovery. It expects inflation to hover near its 2% target, and if Japan's economy continues a moderate recovery, borrowing costs might increase.
This decision was largely anticipated by the market, resulting in limited stock market reactions. On October 31, Tokyo's two major stock indices declined. The Nikkei index fell by 196.14 points, closing at 39,081.25, while the TOPIX index dropped by 8.21 points to 2,695.51. The Nikkei 225 fell by 0.5%, and the Tokyo Stock Price Index decreased by 0.3%.
The Nikkei index opened lower due to declines in major U.S. indices overnight, with stocks like Tokyo Electron, Kyocera, and Fast Retailing facing sell-offs. The yen's appreciation against the dollar led to increased selling in stock index futures by overseas short-term funds, causing the Nikkei to drop over 400 points at one point. However, strong earnings reports from companies like Advantest helped narrow the losses before the market closed.
