Japan: still below zero?

  • Likely to keep rates on hold as they are already negative
  • Likely to show some concern over strengthening USD vs Yen
  • Could show some change to forward guidance following global slowdown

The Bank of Japan meet later today to determine the interest rate path going forward and to provide the market some colour as to what their forward guidance is likely to be.

Japan has followed unconventional monetary policy for the last 20 years and has been in a state of easing since.

The BoJ is likely to be under pressure to ease further following cuts in Europe and the US and the market is signalling that further rate cuts are likely, especially with the market pricing in a further 50bps cut more and more as we near the Autumn when equity market volatility tends to pick up.

Japan has tended to be a strong export base economy and threats from the USD interest rate differential narrowing could put this under pressure, so this is likely going to be something the BoJ would want to avoid.