TOKYO: The Bank of Japan kept interest rates ultra-low on Thursday and signaled the need to carefully scrutinize global economic developments, stressing risks to a fragile domestic recovery in deciding when to tighten policy next.

But the central bank forecast inflation would hover around its 2% target in coming years, underscoring its determination to keep raising borrowing costs if the economy maintains a moderate recovery.

“The BOJ must pay due attention to the future development of overseas economies, especially the US economy, and developments in financial markets,” the BOJ said in a quarterly outlook report.

“It must also examine how these factors will affect the outlook for Japan’s economic activity and prices, the risks surrounding them and the likelihood of the outlook being realized.”

As expected, the BOJ kept short-term interest rates steady at 0.25% at its two-day meeting that ended on Thursday.

The board projected core consumer inflation to reach 2.5% in the current fiscal year ending March 2025, followed by 1.9% in fiscal 2025 and 1.9% in 2026.

Core inflation, which strips out the effect of fuel costs and is closely watched by the BOJ as a key indicator of demand-driven price movements, was also seen at 2.0% in fiscal 2024, 1.9% in 2025 and 2.1% in 2026.

Markets will focus on Governor Kazuo Ueda’s post-meeting briefing scheduled for 3:30 pm (0630 GMT) for clues on the timing and pace of further interest rate hikes.

The BOJ ended negative rates in March and raised short-term interest rates to 0.25 percent in July, seeing Japan as making progress toward sustainably reaching its 2 percent inflation target.

Ueda has repeatedly said the BOJ will continue to raise rates if the economy moves in line with its forecasts. But he also said the bank was in no rush because inflation remained moderate.

Data released Thursday showed factory output and retail sales in Japan rose in September, suggesting the economy is on track for a moderate recovery.

The ruling coalition’s loss of majority in the weekend election has heightened concerns about policy paralysis, raising the bar for further rate hikes, analysts say.

A narrow majority of economists polled by Reuters expect it to forego a hike this year, though most expect one by March.