At today’s meeting the Bank of Japan decided to leave monetary policy unchanged. The policy of the Bank is aimed at injections of liquidity in order to stimulate economic growth and inflation. This decision surprised market participants as many of them expected that the Central Bank would adopt new measures to stimulate national economy as has repeatedly happened earlier.
The decision of the Bank to maintain current volume of asset purchases and leave interest rates unchanged, caused sharp rise in the Yen and the decline in the Japanese stock market. The Bank of Japan left interest rate on deposits at the level of -0.1% (this decision was taken by 7 votes against 2), volume of asset purchase of 80 trillion yen (718 billions USD per year (this decision was taken by 8 against 1).
After the announcement of the Bank’s decisions the pair USD/JPY fell by 2.4%; and the Yen demonstrated the highest rise since 24 August 2015.
At the end of the Asian session Japanese stock index Nikkei Stock Average fell to 18-month lows, which was reached in April at the level of 108.00. This level will now become strong support level, preventing the decline in the pair.
The Bank of Japan did not change the policy despite deterioration of economic situation in the country. Inflation data released last week showed that consumer prices including the price of energy fell by 0.3% in March. Inflation expectations of households last month were the lowest in three years, growth in wages also slowed down.
The Bank of Japan has extended period for reaching target inflation level of 2% for 6 months, shifting it from April 2017 to March 2018. It was the fourth amendment to the forecast this year. The Bank noted that there is a risk of decline in GDP growth.
Nevertheless, the Bank did not forget to make its famous statement about additional measures of monetary easing if the need is. Softening measures will be made in three directions: quality, quantity and interest rates. The East is a delicate matter!