Bank Of Japan Keeps On Hold The Overnight Rate

Japan Overnight Call Rate Actual 0.30%, Expected 0.30%, Previous 0.30%

Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic growth. Economic strength can create Inflation, raising Interest Rates is one of the easiest ways to contain Inflation. The Governments Finance Ministry dominate the Bank, whatever they want they get.

Trade Desk Thoughts: The Bank of Japan decided unanimously to keep the Overnight Call Rate at 0.30%. This comes after the BoJ had cut rates at the last meeting from 0.50% to 0.30%, while the market expected a full 25 basis points cut. With the lowest rate amid industrialized countries, economists argue that the low interest rate will not provide strong enough relief to the Japanese economy, and that the central bank has mostly depleted its powers to influence the business cycle by using monetary policy. The Bank of Japan announced tonight that they are planning to expand their collateral base (the financial assets banks pledge for short- term loans) to also include corporate bonds.

The Japanese economy faces an increasing risk from the strength that the Japanese yen has posted lately, a move that is hurting the economy's engine -exports, and adding to a falling stock market. Latest indicators suggest the Japanese economy might be facing a recession, something that has caused the central bank to switch its focus to downside risks.

Forex Technical Reaction: The yen is virtually trading flat, even though earlier in the Asian session, the pair posted some small declines. The Jpy strengthened because the market is selling riskier assets, which were used to fund carry trading in order to cover the yen's short positions. The Yen is strengthening - against the dollar for a second week and against the euro and pound, a third week.

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