In contrast to the other major central banks, the Bank of Japan is sticking to its loose monetary policy, although it also expects higher inflation than before.

A few hours before the European Central Bank is expected to raise its key interest rate for the first time in eleven years, the Japanese central bank confirmed the key interest rate of minus 0.1 percent at the short end on Thursday.

She also renewed a commitment to buy unlimited amounts of Japanese government bonds to keep 10-year interest rates below 0.25 percent.

Patrick Welter

Correspondent for business and politics in Japan based in Tokyo.

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But inflation is picking up in Japan too.

The members of the Monetary Policy Council are now expecting an inflation rate of 2.3 percent for the fiscal year that started in April, after forecasting inflation of only 1.9 percent in April.

Japan is heading for the highest rate of inflation since 2014, when the government boosted inflation by raising consumption taxes.

If such incidents of government-induced inflation are removed from the comparison, Japan is heading for its highest rate of inflation in 30 years.

Depreciation pressure on the yen

Still, the Bank of Japan, which aims to keep inflation above 2 percent over the medium term, is not overly concerned.

For the following years, the central bankers expect the inflation rate to drop to 1.3 and 1.1 percent.

The central bank is betting that the current energy price hike will end by then at the latest and that the higher costs will not drive up other goods prices in Japan on a large scale.

The outlook for the economic situation has deteriorated.

For the current fiscal year, the bank only expects economic growth of 2.4 percent, after having expected 2.9 percent in April.

The situation is not looking good in the manufacturing sector in particular, because supply bottlenecks have been causing major car manufacturers such as Toyota Motor to limit their production since the spring.

At the same time, Japan is experiencing the seventh wave of coronavirus with a record high number of infections of more than 150,000 a day.

The government is not planning any restrictions on public life for the time being because the vaccination rate is high and medical capacities are not yet overloaded.

The government has already canceled a subsidy campaign for domestic tourism.

The seventh corona wave is likely to delay a recovery in private consumption.

The Bank of Japan's monetary policy decision was largely expected on the financial markets.

Central bank governor Haruhiko Kuroda will leave office next March.

In Tokyo it is expected that until then he will stick to the very expansive monetary policy he has initiated.

Kuroda does not want to leave office with the accusation that the central bank tightened its monetary policy too early, say analysts in Tokyo.

With the wider gap between monetary policy in Japan versus Europe and America widening, depreciation pressures on the Japanese yen are expected to persist.

On Thursday, the Japanese currency was trading at 141 yen to the euro ahead of the ECB meeting.

One dollar costs about 138 yen.

The Nikkei stock index was almost flat after the Bank of Japan interest rate decision.