THE TAKEAWAY: Bank of Japan Keeps Monetary Policy Unchanged > Global economy and leveling domestic activity cited as chief headwinds > Yen trades higher
The Yen traded higher versus its major counterparts as the Bank of Japan decided to keep the benchmark lending rate at 0.10 percent while the ¥25 trillion credit-loan and ¥55 trillion asset-purchase program remain unchanged.
According to the BoJ, a softening global outlook and a Japanese economy that is expected to “level off more or less for the time being” should be reason enough to encourage policy makers to “proceed with monetary easing in a continuous manner by steadily increasing the amount of the asset purchase program.” Merchandise exports increased by roughly 12 percent from August to September, but decreased by 10 percent on a yearly change basis. Industrial production was also highlighted as a weak spot.
Not all is bad in Japan, however. The bank also noted strong domestic demand particularly in public investment and housing activity spurred from reconstruction efforts as a strong component of growth. Moreover, employment and consumer consumption were cited as trending higher while corporate profits appeared to be improving.
A strong yen may continue to be an area of concern for the BoJ as Japan’s economy is heavily dependent on export led growth. The recent weakening in yen however, driven by a lack of heavy risk aversion over the past few months appears to bode well for the home currency as investors have expressed a tendency to move into higher-yielding risky assets on the back of broad international monetary easing efforts.