Bank Of Japan Makes No Change To Its Interest Rate Policy

The yen rose sharply this week against the dollar after Bank of Japan (BOJ) decided that it was going to hold its rates steady despite the yen’s persistent rise in the past few months. The markets reacted negatively as well with the Nikkei dropping by 3.6 percent.

There were strong market expectations that the BOJ would decide on stimulus measures during its policy-board meeting to counter global weakness and the rising yen, or even go deeper into the negative interest rate territory. But the central bank decided to maintain the negative 0.1 percent deposit rate.

In a statement, Alvin Tan FX strategist Societe Generale said

The market was expecting something from the BOJ and they did not deliver so the market has basically wiped out all the rally in dollar/yen of the last couple of weeks. For the last 2-3 years the big theme in the market was monetary divergence. But in the last few months the legs have really been cut off that… so currencies are all over the place.

The BOJ said no action was taken as it wanted to study the effects of the negative interest policy implemented earlier this year. According to BOJ governor Haruhiko Kuroda, the impact of having negative interest rates on the banks’ earnings has been minimal and he warned that it would be wrong to assume that there would be no further cuts into negative territory.

The central bank however lowered the GDP growth forecast for the country to 1.2 percent for the fiscal year 2016-17, from its earlier January estimate which was 1.5 percent. The U.S Fed has also indicated that it was not making any more changes in its interest rate policy. This buoyed up the bond markets pushing the yields of the benchmark Bund and Treasury lower.

According to Soeren Moerch, the head of fixed income trading at Danske Bank, since the Fed did not refer to a likely decision in June, the next possible juncture for a decision on the rates would be in December as the meeting in September would be too close to the U.S Presidential election for any major decision.

The turbulent commodities market did not react significantly to the announcement while crude oil prices remained at $47.19 per barrel its highest level in 2016. Save haven gold went up to $1,255 an ounce.

The Reserve Bank of New Zealand (RBNZ) also opted not to increase its rates causing the New Zealand dollar to rally up by almost 2.5 percent.

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