BOJ Keeps Policy Rates Unchanged Despite Lowering Economic Outlook

Bank of Japan did not dip further into the negative territory amid market and political pressure.

In a 7-2 vote, BoJ will continue applying a negative interest rate of minus 0.1% on commercial banks' excess reserves. In a 8-1 vote, the BoJ will continue to grow its monetary base at an annual pace of about 80 trillion yen.

In the statement, BoJ lowered its outlook on Japan's economy and inflation. Credit Suisse's Hiromichi Shirakawa has the details:

As regards the Bank's economic assessment described in the statement, the summary headline was downgraded to "Japan's economy has continued its moderate recovery trend, although exports and production have sluggish due mainly to the effects of the slowdown in emerging economies", from "Japan's economy has continued to recover moderately, although exports and production have been affected by the slowdown in emerging economics".

As for the assessment of inflation environment, the BoJ slightly downgraded its assessment of expected inflation rates, now saying "Although inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, they have recently weakened". The headline statement on inflation was left unchanged; "the year-on-year rate of increase in the CPI is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices, and, as the underlying trend in inflation steadily rises, accelerate toward 2 percent".

So the policy hold is just temporary and the BoJ is waiting for a better time to pump Japan with more negative rates and liquidity. Today's statement was "implying a decent chance for the policy board to decide on additional easing at the next meeting in April (27-28 April) unless economic and inflation data improve materially," noted Credit Suisse.

While this decision was widely expected, the Japanese yen strengthened 0.4% nonetheless.