Japanese yen fell sharply
The US dollar-Japanese yen currency pair is inversely related to the yen. It rose to a high of 121.68 after the BoJ’s (Bank of Japan) monetary policy. In percentage terms, the currency pair rose by nearly 2.3%. For the euro-yen currency pair, the two countries have a similar monetary policy. As a result, the rise was less compounded. It rose by 1.4%. The negative interest rate policy came after the disappointing data release earlier in the week in terms of household spending and industrial production.
Major takeaways from the BoJ
The BoJ decided to work aggressively towards the 2% inflation target. It came up with the following major steps.
- The new deposits that other banks park with the central bank will be charged 0.1%. In other words, the interest rate was -0.1%. Basically, this includes everything that isn’t below two tiers. It’s also called “policy rate balance.”
- The earlier deposits, or basic balance, will continue to fetch an interest rate of 0.1%.
- The reserves that banks have to keep with the central bank, or the macro add-on balance, won’t have any charge or interest—zero interest rate
- The asset purchase program wasn’t expanded. The BoJ’s governor, Haruhiko Kuroda, was clear that there would be more quantitative easing if necessary.
Impact on the market
Japanese ADRs (American depositary receipts) on US exchanges were trading on a positive note on January 29 after news that the BoJ ventured into a negative interest regime.