Yen Stays Flat as BoJ Rate Decision, Statement Carry Few Surprises
THE TAKEAWAY: BoJ leaves benchmark rate, liquidity programs untouched > Decision, economic outlook widely expected by markets > JPY unchanged
The Japanese Yen was barely changed after the Bank of Japan Board unanimously kept its benchmark overnight target rate unchanged at the zero to 0.10 percent range, as had been widely expected. In addition, the central bank maintained the current size of its Credit-Lending Program (35 trillion Yen) and Asset-Purchase Program (20 trillion Yen). Following the announcement, the USDJPY pair continued to trade flat near the 77.81-77.82 level.
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In its Statement on Monetary Policy, the Bank of Japan cut its evaluation of the economic scenario. Citing the global slowdown, the effects of the floods in Thailand, and the strong Yen, the Bank noted that the “pick-up in Japan’s economic activity has paused.” On the domestic front, the BoJ saw areas of relative strength in business investment and consumption, but pointed to stagnant exports and manufacturing as well as softer overall sentiment. The BoJ also provided a restrained outlook for economic activity in coming months, anticipating stagnant output “for the time being” and a “return to a moderate recovery path” as global growth recovers and as post-earthquake reconstruction runs its course.
Despite the overall pessimistic outlook, markets were unmoved as Japanese economic data leading up to this week has already pointed to an economy that is losing steam. Hours before the BoJ decision, export figures revealed a significant deterioration in the trade deficit that was worse than expected. Last week’s 4th quarter Tankan surveys painted a similarly bleak picture, with both the Large Manufacturers and Large Manufacturers Outlook gauges swinging to negative, indicating that pessimists once again outnumber optimists.
Rather, markets continue to look out for signals from policymakers of further intervention to weaken the currency, which continues to present a major challenge to exporters. At the same time, market participants are also awaiting the results of the European Central Bank’s 3-year tender at 10:15 GMT, which will offer insights into the extent of liquidity problems in the European interbank market. It is the combination of intervention expectations and risk sentiment resulting from these and other announcements from the Eurozone that will continue to be the primary determinants of the Yen’s course.
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