THE TAKEAWAY: BoJ leaves rates, liquidity programs unchanged > Bank reveals little in terms of intervention > Yen unchanged
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The Japanese Yen was little changed after the Bank of Japan kept rates and the scale of its existing liquidity programs unchanged. Minutes after the announcement, the currency was trading slightly stronger at 77.03 versus the US Dollar.
As part of Wednesday’s decision, the BoJ Policy Board decided unanimously to maintain the key overnight rate at the current range of 0 to 0.1 percent. In addition, it maintained it Credit-Loan Program at 35 trillion Yen and the Asset-Purchase Fund at 20 trillion Yen. Meanwhile, in the accompanying Statement on Monetary Policy, the Bank reiterated its commitment to a “virtual zero interest rate policy” until deflationary pressures ease. It also pledged to “continue to consistently make contributions [to combating deflation] by pursuing powerful monetary easing.”
On the economic front, the BoJ lowered its outlook for growth. Citing the cooling global growth scenario and the effects of the floods in Thailand, the Bank expected the Japanese economy to slow before settling at a “moderate recovery path.”
The rate decision comes two days after third-quarter GDP data showed the economy expanding at a 6 percent annualized pace. This – in addition to data last week showing a return to a trade surplus in September – pointed to generally robust activity as the economy recovered from the March earthquake. At the same time, however, the Tertiary Activity Index in September fell 0.7 percent on a monthly basis, the most since March. Machinery orders also swung to negative that month, suggesting renewed caution among Japanese companies in investment decisions.
With a very small chance of interest rate changes for the foreseeable future, markets will continue to focus on signs of possible intervention by the BoJ in order to weaken the Yen and support exporters. In the wake of the Ministry of Finance’s October 31 intervention, speculation has already been rife about the possibility of additional measures. Statements from Japanese policymakers about the exchange rate will continue to shape the Yen’s course.