Japan Emergency Rate Meeting

Japan Emergency Rate Meeting 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: In an emergency meeting held by the Bank of Japan tonight, the policy board decided unanimously to keep the Overnight Call Rate at 0.30%. This comes after the BoJ had cut the interest rate from 0.50% to 0.30% some time earlier. With 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.

In a speech earlier this week, Mr. Shirakawa, Governor of the BoJ, said the economy will probably repeat a deflationary period in the coming months. The Governor also put a lot of emphasis on the corporate environment, saying that borrowing costs rose at the fastest pace during the last quarter.

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 and lower graded 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 trading virtually flat, even though earlier, in the Asian session, the pair tested the neutral pivot point (93.80).

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