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.