BOJ's Cautious Stepping: A Balancing Act Amid Global Uncertainties

The Bank of Japan (BOJ) opted to hold interest rates steady on Tuesday, further signaling a cautious approach by slowing the pace of its balance sheet reduction in the coming year. This decision aligns with rising challenges from the ongoing Middle East conflict and U.S. tariff pressures that complicate monetary tightening efforts.

The central bank decided to maintain short-term interest rates at 0.5%, alongside holding its bond tapering plans steady. However, it outlined a new quantitative tightening agenda, adjusting future government bond purchases. Despite internal dissent, the BOJ has committed to a strategy that aims to prevent market disruptions due to recent volatility in super-long bond yields.

Inflationary pressures remain a central concern, with Japan's core inflation rising significantly above target levels. As global economic uncertainties persist, the BOJ emphasizes the need for a delicate balance between normalizing policy and managing inflation risks, exacerbated by geopolitical tensions and currency influences.

(With inputs from agencies.)