Bank of Japan keeps interest rates unchanged

Bank of Japan Governor Kazuo Ueda enters the bank's headquarters in Tokyo. (AFP)

The Bank of Japan said Friday it would keep its main interest rate unchanged at 0.5 percent, as expected, with economists forecasting officials to announce a hike in the coming months.

However, the BoJ also said it would sell financial assets it had previously acquired to keep rates lower -- including exchange-traded funds -- marking a new phase of its monetary tightening policy.

"Japan's economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits," the BoJ said in a statement following the decision.

The announcement comes hours after government data showed inflation in the fourth-largest economy slowed to 2.7 percent in August partly because of government energy subsidies, with rice prices increasing 68.8 percent year-on-year.

The core inflation reading is still above the BoJ's target of two-percent inflation, and analysts have said the bank intends to hike the key rate later this year or in early 2026.