BoJ Announces Policy Overhaul, Long Term Strategy

Japanese stocks edged higher on Wednesday after the Bank of Japan announced a large-scale overhaul of its current stimulus plan. The BoJ maintained the prior 0.1 percent negative interest rate and set a “yield curve control” which will include the purchase of long-term government bonds to keep current 10-year bond rates close to its current zero percent. The policy was passed in a vote of 7-2. If implemented in its current form, the BoJ’s plan would include purchasing long-term government bonds so that the balance of its holdings increased by 80 trillion yen annually ($781 billion).

Following the announcement the yen slid against the dollar, falling to 102.10 from 101.09 before the announcement. Before the BoJ announcement Japan’s Ministry of Finance also released August trade data that showed that the country’s exports fell 9.6 percent on-year in August, more than 4.8 percent lower than analysts predicted. This data also likely contributed to a negative sentiment in the region.

The World Keeps Waiting

Though it has been thought that the BoJ decision would move markets more than the upcoming Federal Reserve announcement, traders worldwide are still focused on the Fed’s impending news. Sentiment has turned decidedly dovish for a September rate hike, with 90% of those polled by CNBC expecting a rate hike to be postponed until at least December. Analysts are also expecting the Fed to change its interest rate outlook, an announcement that may reduce the current expectation of two rate hikes in the future to only one. Should the Fed choose to postpone the rate hike in its announcement this week, analysts are expecting U.S. stocks to rise, though news in the other direction could send markets into a tailspin. At the end of Tuesday’s U.S. trading session the New York Stock Exchange (NYSE), Dow Jones Industrial Average and the S&P 500 all closed marginally higher.    

Sara Patterson
Sara Patterson has a Master’s Degree in political science and enjoys analyzing both current events and the international markets to get a fuller perspective of the currency market. Before turning to financial writing, she taught English writing skills to high-school age students. Sara’s work has been published on various financial and Forex blogs.