FX comment – JPY sold off aggressively after BoJ announced negative interest rates

by: Roy Teo

JPY sold off aggressively after BoJ announced negative interest rates

Before the BoJ monetary policy decision announcement, the Nikkei reported that the BoJ discussed negative interest rates due to growing concern of downward pressure on the Japan economy and inflation due to low crude oil prices and concerns on China. The JPY was sold off from 118.60 to above 119.30 as a result. The JPY extended its loss to 121.40 after the BoJ announced that they will introduce negative interest rates with a 5-4 vote. Current accounts with the central bank will be tiered to include positive rate, zero rate or negative rate to ensure no undue pressure on banks’ earnings. The positive 0.1% applies to existing balance, while zero rate applies to required reserves. The negative rate applies to accounts in excess of these amounts and will come into effect from 16 February 2016. The BoJ reiterated stated that they will continue to lower interest rates if needed and maintain their monetary easing program until stable 2% inflation is achieved (forecast first half of Fiscal year 2017). The size of the asset purchase program remain unchanged.  Looking ahead, we expect the JPY to depreciate to around 130 against the USD by the end of this year.