Bank of Japan likely to keep short-term and long-term interest rate targets on hold in March

The Bank of Japan is set to meet tomorrow for the monetary policy meeting. According to a DBS Bank research report, the Japanese central bank is likely to keep the short-term and long-term interest rate targets unchanged at -0.1 percent and 0 percent, respectively.

Growth outlook is deteriorating because of easing exports. Manufacturing PMI has fallen before 50 for the first time since the end of 2016, to 48.9 in February. Industrial production also contracted over by 3.7 percent sequentially in January. Against this macro backdrop, the bias now is for the BoJ to further ease rather than normalizing monetary policy.

However, given the negative short-term rates and the extremely flat yield curve, the room for further easing is rather restricted. In the meantime, extraordinary easing has led to side-effects in the financial system, such as the deterioration in banks’ profitability and capabilities to lend.

“Unless the risks of recession and deflation shoot up, the BOJ may not rush to expand monetary stimulus, in our view”, added DBS Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Japanese Yen was highly bearish at -123.894 while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -14.1738 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex