Yen Gains as BOJ Vows to Take Action if Global Events Hit Economy

Source: Forex News

Japan is the third-biggest
economy in the world following the United States and China. The country has a
GDP of almost $5 trillion and a population of more than 126 million people. Japan
is known for a number of things such as its aging population, classic companies
like Toyota, Mitsubishi, and Nissan, and its lost decade. The lost decade was a
period of economic stagnation that happened between early 90s and early 2000s.

The Japanese yen strengthened
slightly earlier today after the BOJ made its interest rates decision. As
expected, the bank left interest rates unchanged at minus 0.1%. The vote to
leave rates unchanged was unanimous. The officials also announced that it was
prepared to do more easing if global economy hits the economy. The bank said
that it will keep interest rates at this level at least through spring of 2020.
The statement said:

As for policy rates, the Bank
intends to maintain the current extremely low levels of short- and long-term
interest rates for an extended period of time, at least through around spring
2020, taking into account uncertainties regarding economic activity and prices
including developments in overseas economies and the effects of the scheduled consumption
tax hike

On Quantitative Easing, the bank
said that it would continue spending 80 trillion yen to acquire Japan
Government Bonds (JGB). The bank will purchase ETFs and Japan Real Estate
Investment Trusts (J-REITS) so that the amounts outstanding will increase at an
annual pace of 6 trillion and 90 billion yen respectively. These asset
purchases are essential in ensuring that interest rates are able to remain low.
The bank expects these actions to cause the inflation rate to move to 2%.

The central bank’s decision came
a day before the Federal Reserve is scheduled to release its interest rates
decision. The bank is widely expected to cut interest rates by 25 basis points.
This will be the first rate cut since the 2008 financial crisis. Investors will
want to know the extent to which the bank is expected to go to lower rates this
year. A day later, the Bank of England (BOE) is set to release its interest
rates.

The Australian central bank has
already cut interest rates two times while the ECB has pointed to further rate
cuts or return of QE in the near term.

The USD/JPY pair declined sharply
after the BOJ delivered its interest rates decision. The pair reached a low of
108.50 from the previous high of 108.95. This price is below the 21-day and
42-day moving averages. The RSI has dropped sharply from a high of above 70 to
a low of 35. While the pair could continue moving lower, it will likely be a
bit volatile ahead of the Fed decision.

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