While the decision took a little longer than usual, there has been no surprise from the Bank of Japan this afternoon with the bank keeping interest rates and the size of its asset purchase program unchanged from when it last met in January.
The board pledged to expand the nation’s monetary base at an annual pace of about 80 trillion yen and kept interest rates unchanged at -0.1%. The board split 8-1 on the size of asset purchases, and 7-2 on interest rates.
As opposed to the January 29 statement that coincided with the shock decision to adopt a negative interest rate policy, the board dropped the line suggesting “it will cut the interest rate further if judged as necessary.”
Reflective of recent weakness in domestic economic data, the bank stated that “Japan’s economy has continued its moderate trend, although exports and production have been sluggish due mainly to the effects of the slowdown in emerging markets”.
Looking ahead, the board suggested that while “sluggishness is expected to remain in exports and production for the time being, domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors”.
“Thus, Japan’s economy is likely to be on a moderate expanding trend,” said the bank.
On risks moving forward, the board cited “uncertainties surrounding emerging and commodity-exporting economies, particularly China” along with “developments in the US economy and the influences of its monetary policy response to them on the global financial markets”.
Given heightened financial market volatility at the start of 2016, it also warned that “due attention still needs to be paid to a risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively effected”.
Despite being widely expected by most analysts, the inaction from the BOJ has been met with a wave of displeasure from investors. The USD/JPY is currently trading at 113.39, its low for the session, while the Nikkei 225 is currently down 0.82% at 17,091.66 having been higher prior to the decision.
BOJ governor Haruhiko is scheduled to hold a press conference beginning at 5.30pm AEDT.
The full monetary policy statement from the BOJ can be accessed here.
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