As expected, the Bank of Japan decided to keep the monetary policy unchanged at the meeting this morning. The policymakers, however, warned that current economic conditions remain of concern, hence, will likely become an impediment to reaching the previously set inflation objectives.
“The BOJ is trying hard to reduce the impact that negative rates are having on the financial sector because banks have been very critical of this policy,” commented Hiroaki Muto, an economist at Tokai Tokyo Research Center to the Reuters this morning.
At the moment, the interest rate was left at -0.1%, with the current quantitative easing program remaining at an annual pace of 80 trillion yen money base expansion and ETF buying program intact.
It was also decided to exempt US$90 billion in short-term funds from the negative rates, as concerns from the investment industry suggested that funds could end up in bank deposits.
However, perhaps the biggest surprise to investors was the alteration of the statement language, suggesting that a further progression of the interest rates into negative territory might be coming to an end.
The Japanese yen strengthened against the US dollar, reaching 113.56 this morning after the news were announced. The Nikkei index, on the other hand, weakened, as it was trading almost 1% lower on a day.