THE Bank of Japan (BOJ) on Friday dialed back emergency pandemic funding but maintained ultra-loose policy and extended financial relief for small firms, cementing expectations it will remain among the most dovish central banks for the foreseeable future.

BOJ Governor Haruhiko Kuroda said borrowing costs will remain low in Japan even as other central banks hike interest rates, stressing the roll-back of emergency funding was in no way a prelude to a full-blown withdrawal of monetary stimulus.

The BOJ’s decision, underpinned by cautious optimism that the economic damage wrought by coronavirus crisis is gradually healing, came hours after Britain became the first G7 economy to raise rates since the onset of the pandemic.

The U.S. Federal Reserve and the European Central Bank also moved towards rolling back crisis-era stimulus, though at varying degrees reflecting their differing views — as well as uncertainty — on the surge in global inflation.

Fears over the recent rapid spread of the Omicron variant of the coronavirus have also complicated the challenge for policymakers, whose monetary plans for a post-pandemic economic revival have been disturbed.

“The bigger picture is that in a week where the Fed signaled several rate hikes next year and the Norges Bank and the Bank of England raised interest rates, the BOJ sounded strikingly dovish,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“The upshot is that the Bank of Japan will remain among the few central banks that won’t tighten policy for the foreseeable future.”

In a widely expected decision, the BOJ on Friday maintained its short-term rate target at -0.1 percent and that for 10-year bond yields around 0 percent.

(SD-Agencies)