-- The Bank of Japan kept interest rates unchanged as expected on Friday, and forecast softer economic growth and higher inflation in the coming years on the back of increased import costs and fewer government relief measures.

The BOJ kept its at 0.1%, after hiking the rate for the first time in 17 years at its previous meeting. The bank had then also ended its yield curve control policy, while scaling back most of its asset purchase programs. 

The BOJ said on Friday that it now expects inflation to trend between 2.6% and 3% for fiscal 2024, and to then hover around its 2% annual target in 2025 and 2026. 

This was an increase from the 2.2% to 2.5% CPI range for 2024 forecast by the BOJ in its January outlook. 

The central bank trimmed its outlook in the face of higher inflation and growing uncertainties over the global economy.

The BOJ now expects GDP in fiscal 2024 in a range of 0.7% to 1%, down from its January forecast of 1% to 1.2%. For fiscal 2025, GDP is expected between 0.8% and 1.1%, down from prior forecasts of 1.1% to 1.2%. 

The BOJ’s forecast for higher inflation was a main driver of its March policy pivot. The central bank expects higher wages to buoy spending in the coming months, especially as several major Japanese labor unions won bumper wage hikes for the year. 

Higher inflation also gives the BOJ more impetus to hike interest rates, although weakness in the Japanese economy may limit its capacity to hike. 

Still, data released earlier on Friday showed that grew substantially less than expected in April. The reading, which acts as a bellwether for nationwide CPI inflation, tumbled below the BOJ’s 2% annual target, raising some questions over the BOJ’s outlook for higher inflation.  

The BOJ decision comes as the Japanese yen weakened substantially in recent weeks. The pair, which represents the number of yen needed to buy one dollar, surged to a 34-year high this week. The currency pair traded well above the 155 level, the breach of which put traders on guard for any potential currency market intervention by the Japanese government. 

Weakness in the yen saw traders positioning for hawkish signals from the BOJ. Focus is now squarely on a press conference with , at 2:30 ET (06:30 GMT).