The Bank of Japan maintained ultra-loose policy and gave dovish guidance on the outlook

　　The Bank of Japan maintained ultra-low interest rates on Friday and pledged to continue supporting the economy until inflation reaches its 2 per cent target on a sustained basis, in a sign it is in no hurry to phase out its massive stimulus programme.

　　Markets are watching Governor Kazuo Ueda's comments in a post-meeting briefing for clues on when the bank will raise rates. The yen weakened to around 148.09 against the dollar, near the psychologically important 150 level, which is seen as the floor for authorities to intervene in the currency.

　　"The decision reflects policymakers' lack of confidence that wage growth will gain enough momentum to achieve sustained inflation," said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities.

　　Central bank decision

　　The Bank of Japan decided to remain "on hold", keeping its benchmark interest rate at a record low of minus 0.1 per cent and its 10-year government bond yield target near 0 per cent.

　　The boj's decision contrasts sharply with those of the US Federal Reserve and the European Central Bank, which at recent meetings expressed their determination to keep borrowing costs high to curb inflation.

　　The central bank's forward guidance was unchanged, retaining its promise to "not hesitate to take additional accommodative measures" - and some market participants believe the language may have changed to a more neutral tone.

　　While the Bank of Japan is on hold for now, analysts are bracing for a near-term policy shift given signs of growing inflationary pressures in the world's third-largest economy.

　　Since taking office in April, Ueda has been steadily laying the groundwork for a future exit from ultra-loose policy, although he has stressed the need to maintain stimulus. The Bank of Japan loosened its grip on long-term interest rates in July, allowing them to rise more freely in a nod to rising inflation, a move seen by markets as an exit step.

　　"The BOJ may have enough data before the end of the year to decide whether to end negative interest rates, raising market expectations of a near-term policy shift," he said in a recent interview.

　　Takumi Tsunoda, senior economist at Shinkin Asset Management, said: "The BOJ is trying to prepare the market for a future policy shift. It may want to adjust the monetary policy framework designed to beat deflation."

　　Market expectation

　　A Reuters poll in September showed that most economists predicted negative rates would end in 2024. The prospect of higher interest rates pushed yields on 10-year Japanese government bonds to fresh 10-year highs on Thursday.

　　The BOJ faces a variety of challenges in unwinding former governor Haruhiko Kuroda's aggressive stimulus program, including signs of weakness in the global economy and the risk of triggering a spike in yields that would push up the cost of financing Japan's huge public debt.

　　But maintaining ultra-low rates is not without costs. The growing prospect of a prolonged US rate rise has weakened the yen against the dollar, pushing up the cost of imported fuel and raw materials.

　　The yen's renewed slide has prompted fresh verbal warnings from government officials, putting pressure on the Bank of Japan to play its part in easing the pain of rising import costs.

　　Japanese Finance Minister Shunichi Suzuki said on Friday he would not rule out any options to deal with excessive volatility in currency markets.