The Bank Of Japan Held Interest Rates Steady (And Said Very Little Else)

The Bank Of Japan Held Interest Rates Steady (And Said Very Little Else)
Reda Farran, CFA

2 months ago2 mins

What’s going on here?

The Bank of Japan (BoJ) held the country’s negative interest rates steady again on Tuesday, saying it’s in no rush to shift gears.

What does this mean?

The BoJ’s been chilling in the sub-zero zone, even as its peers have gone hiking. That’s because Japan’s been actively working to nudge prices higher, after two decades of growth-crushing deflation. So it might not have come as a huge surprise that the Bank maintained its -0.1% status quo and its title as the only major economy with a negative lending rate. But it did stoke some disappointment. Inflation in the country has been stuck above the BoJ’s 2% target since April of 2022, and investors were hoping the central bank would finally offer some insight about when it might start raising interest rates to cool those price rises. But it did none of that.

BoJ keeps negative rate

Why should I care?

For markets: Silent type.

With little to go on, aside from the BoJ’s ambiguity, investors assumed that hikes are still in no way imminent. That rattled through markets on Tuesday, sending Japanese bond yields and the country’s yen lower. After all, the prospect of lower-for-longer interest rates makes the currency less attractive to international investors and savers. Japan’s stocks, on the other hand, got a boost from the news, since cheap borrowing costs and a weak yen are good for big Japanese companies that sell their goods overseas.

Dollar to yen
Source: Google Finance

The bigger picture: Easy does it.

The Bank’s decision not to say much this week may well be a deliberate one, considering its policymakers are facing a difficult balancing act. Abandon the negative interest now, when other major central banks are lowering their rates, and they could trigger a flood of investment into Japan, strengthening the yen. That, in turn, would slash the costs of imports into the country, potentially revitalizing that old deflation foe and undermining decades of BoJ effort.

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