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The Bank of Japan decided last week to keep interest rates on hold, as expected, but minutes from its January meeting have shed a little bit of light on the slightly more optimistic tone adopted by the central bank.

On January 31, the BoJ decided to keep interest rates – and all its other monetary policy mechanisms – unchanged, but also released its highly anticipated economic outlook statement that cast the Japanese economy’s future in a slightly better light.

At the time, the central bank lifted its expectation for real GDP growth in the 2017 fiscal year to 1.5 per cent, compared to a forecast of 1.3 per cent provided in October. Board members retained their forecast for inflation (measured as CPI excluding fresh food) of 1.5 per cent in the 2017 fiscal year, which was unchanged from October, but now in a tighter range.

On inflation, the minutes revealed “a few members” of the BoJ board thought the rate of change in the consumer price index “would not reach around 2 percent during the projection period”. That was something of an improvement from the December meeting where “many members” recognised “there was still a long way to go” to achieve that target.

Weakness in the yen, brought about by a rally in the dollar after Donald Trump won the US presidential election, is also expected to give the Japanese economy a boost. However, the minutes also revealed an element of caution toward political developments in the US and further afield. The BoJ said:

Regarding risks to future developments in overseas economies, members shared the recognition that uncertainties were high, including those over the economic policy of the new U.S. administration and its impacts on emerging economies, for example, as well as the outcome of national elections to be held in major European countries.

The yen was marginally weaker this morning at ¥111.70 per dollar and eyeing a possible seventh day of gains against the greenback, which could be its equal-longest winning streak so far this year. Earlier this morning, data showed strong export growth in February.

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