Bank of Japan keeps key interest rate steady as it treads cautiously on normalizing policy

The Bank of Japan kept its benchmark interest rate steady at "around 0.25%" — the highest rate since 2008 — at the conclusion of a two-day meeting Friday. 

While the decision is in line with Reuters poll estimates, economists largely see another rate hike by end of the year.

The verdict came as the BOJ strives to normalize its monetary policy after a long-held ultra-easy approach, without hurting the country's economy.

Japan's economy has recovered moderately, the central bank said in its official statement, while acknowledging "some weakness has been seen in part."

It noted that the economy will continue to grow at "a pace above its potential growth rate ... as a virtuous cycle from income to spending gradually intensifies."

BOJ said the country's core inflation rate — which strips out fresh food prices — will rise through fiscal year 2025.

Japan's fiscal year runs from April 1 to March 31, which means the 2025 fiscal year will end on March 2026.

Yields on the 10-year Japanese government bond were down 0.4 basis points while the yen was nearly flat at 142.52 against the dollar. The Nikkei 225, which was up 2%, maintained the same level after the decision.

BOJ Governor Kazuo Ueda said last month that the central bank would continue to raise interest rates if the economy and inflation stayed in line with the central bank's projection. 

The tightening stance has set the BOJ apart as an outlier at a time when most of the global central banks are shifting toward easing policy. On Thursday, The U.S. Federal Reserve cut interest rates by 50 basis points to a range of 4.75% to 5.0%. 

The BOJ had long maintained interest rates near or below zero, as it sought to spur inflation and boost economic growth with massive monetary stimulus.

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