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Written by Richard Lee and Terri Belkas, Currency Analysts

No surprise here, the Bank of Japan left rates alone at the current 0.5 percent.  However, bearishly supportive for the underlying Japanese yen was the fact that Governor Fukui stated he needed to “be more confident about the outlook for the economy and prices.” Although growth and inflationary pressures have seemed to tick slightly higher, central bank members were “in absolute agreement that there are still many factors that need to be examined closely.”  Simply put, Fukui suggested that the market shouldn’t expect higher rates in the world’s second largest economy for the time being.  With Japanese elections coming up in the next month, speculation is now setting sights on a plausible August decision of 25 basis points, leaving scope for a definitive move in September.  Incidentally, the ultimate decision is also a reminder of, not only how conservative the Bank of Japan stands, but how influenced monetary policy makers seem to be.  Market sentiment had supported a move by policy makers this month in order to reaffirm the central bank’s independence against the headline government.  The notion was backed by the fact that gross domestic product had grown to almost double the pace of the world’s largest economy, the US, while inflationary pressures remained weak but steady.