BoJ Keeps Rates Unchanged, Forecasts Deflation

Japan Overnight Call Rate Actual 0.10%, Expected 0.10%, Previous 0.10%

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 by a unanimous vote to maintain the Overnight Call Rate at 0.10%.

Having the lowest rate amid industrialized countries, economists argued 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. Estimates are that the Japanese economy will contract between 1.9% and 2.5% in 2009, as the slow internal and external demand drastically reduces the export market. The economy is forecasted to recover lately, in 2010. The bank estimates the CPI read will fall down to -1% in 2009.

In addition, the strength the yen has posted lately has further reduced the appeal of Japanese made goods abroad. The yen reached yesterday the lowest value since 1995, despite several intervention threats coming from BoJ.

Forex Technical Reaction: The pair had no reaction to the news release. Since the Asian session started, the yen fell 30 pips

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