Forex Blog: Currency Trading News & Analysis.

January 21st 2007

Low rates continue to depress Yen

In a move that jived with investor expectations, the Bank of Japan voted last week to maintain interest rates at current levels, which leaves the benchmark lending rate of .25% the lowest in the industrialized world. While Japan has definitively emerged from its decade-long recession, policy makers apparently are not convinced that the economy is in strong enough shape to support a rate hike. Besides, the Central Bank is certainly enjoying downward pressure on the Japanese Yen in forex markets, since a cheap Yen makes for competitive exports, which are the cornerstone of Japan’s economy. The upshot is that the carry trade, in which investors borrow in Yen and invest in securities denominated in higher-yielding currencies, will remain a viable option for the foreseeable future. Reuters reports:

Even if the BOJ had lifted rates, many analysts believed a move would provide little relief to the yen because short-term Japanese interest rates remain so much lower than those of other currencies and the BOJ has pledged to lift rates only gradually.

Read More: Yen hits 13-month low, BOJ keeps rates on hold

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Posted by Adam Kritzer | in Central Banks, Japanese Yen | No Comments »

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