“Most of the market participants across the globe right now do not expect US Fed to increase rates and expect some sort of dovish commentary from them, but let us see because that is a very big important event from a market standpoint of view globally”, he said. Even if US Fed does not hike rates, market participants will put more weight on what Janet Yellen has to say about future rate cuts. “It also left unchanged a 0.1 per cent negative interest rate it applies to some reserves parked by financial institutions at the central bank”.
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He added in a note to clients that “fears still linger over central banks running out of ammunition to jumpstart global growth while China woes periodically sour risk appetite”.
As opposed to the January 29 statement that coincided with the shock decision to adopt a negative interest rate policy, the board dropped the line suggesting “it will cut the interest rate further if judged as necessary”.
That would still leave the central bank ahead of market forecasts, where financial markets are pricing in just a 77 per cent chance of a single hike this year and a 4 per cent chance of a hike this week. The move is meant to compel banks to lend to businesses and consumers instead of hoarding cash, which would in turn spur growth and consumption in a sluggish economy.
On the other hand, the central bank said Japan’s economy continues on the path to moderate recovery despite weaker exports and industrial production due to the slowdown of emerging markets, a document said.
The eyes will be next on the two-day policy meeting of the U. S. Federal Reserve starting on Tuesday.
But in a nod to criticism over its negative rate policy, the BOJ removed a line from its prior statement in January that it is ready to cut rates further, triggering a bout of yen buying by investors betting Mr Kuroda would hold off on cutting rates further.
A couple of slight adjustments to its negative rate policy indicate the BOJ is still struggling to deal with a backlash in Japan. “I don’t think we have to wait until after we know the full impact” of negative rates, he said.
Euro zone government bond yields, which fell in the previous two days after the European Central Bank cut interest rates and expanded its asset-purchase scheme last Thursday, held steady.
The Bank of Japan’s policy board is set to discuss this week whether to exempt $90 billion in short-term funds from its newly imposed negative interest rate, people familiar with the matter said, after the securities industry warned that investment money would be driven into bank deposits.
The Australian dollar has reached a new 2016 high against the greenback ahead of a critical week for the global monetary policy outlook. The CSI300 index .CSI300 of the largest listed firms in Shanghai and Shenzhen rose 0.3 percent and the Shanghai Composite .SSEC 0.2 percent.
The yen rose against the US dollar, trading as low as ¥ 113.02 in the afternoon in Tokyo, versus ¥ 113.79 late Monday in NY.
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The euro added 0.1% to $1.1159, well above last week’s low of $1.0821 plumbed after the ECB’s stimulus expansion.
