Bank of Japan Holds Policy Steady

Market Trends - 15/03/2016

The Bank of Japan in its monetary policy press conference today announced no changes, leaving benchmark interest rates unchanged at -0.10% after the move negative in January, and QQE was left untouched at 80 trillion Yen. In their statement, bankers from the BoJ cited weaker inflation growth on mounting global risks from the Eurozone and the impact of the first and potentially following US Federal Reserve rate hikes. Governor Kuroda noted that the Central Bank needs more time to gauge the true result of negative interest rates, while calming speculators that believe the Bank could still cut rates further, which has concerned many investors in Japan. The move today was widely expected but also builds speculation for further easing measures likely to be taken at the BoJ's next meeting in April, despite Kuroda’s comments. USDJPY is currently weaker after opening at 113.788.

The move from the Bank comes on the heels of the ECB’s – whose officials refrained from coming out strongly against the exchange rate on the backdrop of negative interest rates. Amidst initial expectations that negative rates would help to weaken the exchange rate, both the ECB and BoJ have significantly shifted the policy towards lending and liquidity, with the sharp cuts into negative territory being seen as domestic and not international policy shuffling. In a way, the new shift in policies is clearly sending a message that while NIRP has technical limits on the markets, it could be effective in changing the incentives in credit and lending transmission channels. Following the BoJ’s policy statement, the US Federal Reserve will be holding its monetary policy meeting tomorrow where interest rates are expected to remain unchanged amidst hawkish tones.


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