BOJ Keeps Rates on Hold Citing Global Slowdown

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The Bank of Japan kept its monetary policy unchanged at its February meeting held yesterday. While the decision was broadly expected, the market was somewhat taken back by the dovish shift in the BOJ’s commentary.

In the statement issued alongside the monetary policy decision, the BOJ noted that it is now far more pessimistic about the domestic economic recovery and the health of the global economy.

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Global Slowdown Weighing on Exports

The bank has previously expressed its view that strong exports and factory output will keep growth momentum in place. However, it tempered this view this time around in light of recent global growth concerns.

The BOJ has now reduced its assessment on foreign economies in light of the slowdown and heightened political uncertainty in Europe. The bank stated that “exports and production have been affected by the slowdown in overseas economies.”

However, the BOJ chief did say that it feels the economy will “continue its moderate expansion, despite being affected by the slowdown in overseas economies for the time being.”

Kuroda expanded on this, saying;

“It is true Japan’s exports and output are being affected by lean overseas growth. On the other hand, domestic demand continues to grow. We maintain our baseline view that the economy is expanding moderately.”

Kuroda: Output Gap is Improving

Kuroda went into further detail about the bank’s economic outlook, stating:

“It is likely to take longer to achieve our price target. However, the output gap is improving … Most board members think it’s more appropriate to patiently maintain our current stimulus programme.”

However, the BOJ chief was quick to add:

“We are not saying that we only care about achieving our price target. Our goal is that prices should rise gradually, reflecting an improvement in corporate profit and job growth rate … We also need to keep in mind the impact our policy has over market functioning and financial intermediation.”

In terms of the global outlook, Kuroda tempered earlier comments by saying:

“The chance of overseas economies worsening further is low. It’s a risk. However, the baseline scenario is for overseas economies to pick up in the latter half of this year, particularly areas that are currently witnessing signs of weakness such as China and Europe.”

Kuroda Defends Negative Rates

The BOJ continues to come under criticism. This is due its decade long easing program involving both negative rates and a massive quantitative easing program, in addition to its recently introduced yield curve control program.

Despite the criticism, Kuroda and co remain resolute in their commitment to maintaining an easing presence despite inflation still being nowhere near target.

Commenting on the issue of negative rates, Kuroda told reporters:

“Many European countries maintain negative interest rates and apply them to a pretty big pool of funds … In Japan, we only apply minus 0.1 percent negative rates and only to a small portion.”

Technical Perspective


EURJPY is now trading back above the 125.46 level, which was a major support level in 2018. If price can break back above the 2019 lows, bulls will be looking for a challenge of the bearish trend line from 2018 highs next. 125.46 should now hold as support once again if retested.

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