The Bank of Japan holds rates amid uncertainties, cautiously advancing monetary policy adjustments.

In the context of political turmoil and Niuhuiglobal market fluctuations, the Bank of Japan (BOJ) concluded its two-day meeting on Thursday, deciding to maintain short-term interest rates at 0.25% to ensure the stability of its monetary policy. With the ruling coalition losing its majority in parliament, political uncertainty within Japan has increased, and the market is concerned that a potential policy deadlock could limit the BOJ's ability to raise interest rates in the future. Additionally, due to Japan's weak economic recovery and lack of significant inflationary pressures, analysts expect the central bank to maintain a moderate monetary policy.

The BOJ needs to balance its policy stance while dealing with economic and exchange rate fluctuations, avoiding speculative yen depreciation, and preventing the market from becoming too optimistic about its rate hike path. Coupled with international uncertainties brought about by the upcoming US presidential election, the BOJ maintains an ambiguous attitude towards its policy path. Naomi Muguruma, a bond strategist at Mitsubishi UFJ Morgan Stanley Securities, points out that domestic political turmoil may affect economic activities, making the BOJ's rate hike plans face resistance. Meanwhile, if a rapid depreciation of the yen triggers inflationary pressures, the central bank may need to take moderate measures.

In its upcoming quarterly report, the BOJ is expected to maintain its inflation rate forecasts at about 2% until early 2027, with the market paying attention to any new statements on risk assessment and future policy guidance. In recent rate decisions, the BOJ has gradually relaxed its monetary easing measures, ending negative interest rates in March this year, and adjusting short-term rates to the current level in July, reflecting the bank's view that the economy is moving towards the 2% inflation target. Nevertheless, BOJ Governor Haruhiko Kuroda emphasizes that inflationary pressures are moderate and controlled, and the bank's pace of rate hikes will proceed steadily. Most economists do not anticipate a rate hike within this year but expect a possible increase by March next year.

In the current political and economic landscape, the BOJ demonstrates a cautious yet flexible policy response to ensure economic stability while leaving room for future changes.

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