Bank of Japan Leaves Interest Rates in Negative Territory

Highlights

• On Tuesday, the Bank of Japan left interest rates in negative territory.
• The BoJ quarterly outlook report remained silent on BoJ plans to exit negative rates.
• Later in the session, the Bank of Japan press conference warrants investor attention before the US session.

The Bank of Japan Leaves Interest Rates in Negative Territory

On Tuesday, the Bank of Japan delivered its first monetary policy decision of the year. Significantly, the BoJ left interest rates unchanged at a negative 0.1%.

According to the Statement on Monetary Policy,

• The BoJ unanimously voted to maintain a negative interest rate of minus 0.1%.
• There were also no changes to the Yield Curve Control policy.
• An upper bound of 1.0% for 10-year Japanese Government Bond yields will remain a reference.

According to the BoJ Outlook for Economic Activity and Prices Report,

• A slowdown in the pace of recovery in overseas economies will pressure the Japanese economy.
• However, the BoJ expects a pickup in spending to fuel the Japanese economy thereafter.
• The BoJ expects core inflation to remain above 2% through fiscal year 2024.
• Compared with previous Outlook Reports, projected growth for 2023 was lower for 2023 but higher for 2024.
• Significantly, the annual core inflation rate is lower for 2024.
• Considering economic uncertainties about the economy and financial markets, the Bank will patiently continue with monetary easing.

USD/JPY Reaction to the BoJ Monetary Policy Decision

Before the BoJ monetary policy decision, the USD/JPY fell to a low of 147.909 before climbing to 148.268.

However, in response to the BoJ monetary policy decision, the USD/JPY fell to a low of 148.103 before rising to a high of 148.544.

On Tuesday, the USD/JPY was up 0.19% to 148.367.

Up Next

The Bank of Japan press conference could be pivotal. Forward guidance on the economic outlook, wages, inflation, and interest rates warrants investor attention. The markets anticipate an H1 2024 BoJ pivot from negative rates. Bank of Japan Governor Ueda will likely reference the BoJ Quarterly Outlook Report.

Expectations of softer inflation and an uncertain economic outlook could allow the BoJ to retain ultra-loose policy.

Later in the session, the US economic calendar will garner investor interest. Richmond Fed indexes could influence bets on a March Fed rate cut.

Economists forecast the Richmond Fed Services PMI to decline from 0 to -5 and the Manufacturing PMI to fall from -11 to -15.