The Bank of Japan kept interest rates steady on Friday and revised up its assessment on consumption, signaling its confidence a solid economic recovery will allow the central bank to raise interest rates again in coming months.
Markets are focusing on any hints from Governor Kazuo Ueda on the timing and pace of future rate hikes at his post-meeting news conference.
As widely expected, the BOJ kept short-term interest rates steady at 0.25% at a two-day meeting that ended on Friday.
"Private consumption has been on a moderate increasing trend despite the impact of price rises and other factors," the BOJ said in a statement announcing the decision.
The assessment was more optimistic than the previous view that consumption was resilient.
The BOJ ended negative interest rates in March and hiked short-term rates to 0.25% in July, in a landmark shift away from a decade-long stimulus programme aimed at firing up inflation.
Ueda has stressed the BOJ's readiness to raise rates further if inflation remains on track to durably hit its 2% target, as the board currently projects.
If he repeats such hawkish communication at his press conference, it would contrast with many other central banks shifting to a rate-cut cycle, including the U.S. Federal Reserve, which delivered an oversized reduction in borrowing costs on Wednesday.
A majority of economists polled by Reuters expect the BOJ to raise rates again this year with most betting on a December hike. None in the poll projected a rate increase this month.
Core consumer inflation hit 2.8% in August to accelerate for the fourth straight month, data showed on Friday, keeping alive expectations for further interest rate hikes.
Japan's core inflation rose 2.8% in July, accelerated for a fourth straight month, keeping alive expectations for further interest rate hikes.
The chance to check data against its projections more carefully would come at the BOJ's Oct. 30-31 meeting, when the board will conduct a quarterly review of its forecasts.
Japan's economy expanded an annualised 2.9% in April-June and real wages rose for two straight months in July, easing fears that rising living costs will dent consumption.
But soft demand in China, slowing U.S. growth and the yen's recent rebound cloud the outlook for the export-reliant country.
Market volatility remains a key concern for BOJ policymakers after the July rate hike and hawkish remarks from Ueda triggered a yen spike and sharp falls in equity prices.
Several BOJ policymakers have called for scrutinising market moves in setting policy. But they also reiterated the bank's readiness to keep raising rates, with one hawkish board member saying short-term rates must eventually go up to around 1%.
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