Japan’s core inflation edged up to 2.8% year-on-year in August, according to official data released on Friday, compared to a 2.7% increase in July.

The Consumer Price Index (CPI) rise, which excludes volatile fresh food prices, met market expectations. Despite the modest inflationary uptick, the Bank of Japan (BoJ) was widely expected to maintain its ultra-loose monetary policy during its meeting later in the day.

All 53 economists surveyed by Bloomberg predicted that the BoJ would keep its benchmark interest rate unchanged at 0.25%. This decision contrasts with other major central banks, such as the US Federal Reserve, which recently cut its lending rate by half a percentage point in response to economic conditions.

UBS economists Masamichi Adachi and Go Kurihara echoed the sentiment that no immediate policy change was anticipated from the BoJ, stating that, given the cautious market sentiment, there was little justification for a rate increase at this time.

For years, the BoJ has pursued an accommodative monetary stance, aiming to stimulate demand-driven inflation and achieve its 2% target through wage growth. While inflation in Japan has consistently surpassed the 2% mark since April 2022, the BoJ attributes part of this rise to external factors, such as the impact of the war in Ukraine, rather than domestic demand.

Although the BoJ made incremental adjustments earlier this year by raising borrowing costs in March and July, it remains hesitant to push rates higher, fearing potential market disruptions. In previous rate hikes, the yen appreciated sharply, leading to a sell-off in Japanese stocks and a surge in the currency. The resulting volatility saw Tokyo’s Nikkei 225 index plunge over 12% in early August, marking its steepest drop since Black Monday in 1987.

While Japanese equities have stabilized, they remain more volatile than other global indices, reflecting investor caution as the BoJ balances inflationary pressures with economic stability.