Tuesday, March 20, 2007

Bank of Japan Leaves Rates Unchanged

From the WSJ:

Bank of Japan board members Tuesday voted unanimously to leave monetary policy steady, in line with indications from the central bank that it wouldn't immediately follow a rate rise in February with a further policy tightening.

Analysts expect the BOJ to raise interest rates further but not until economic data show domestic demand is picking up and price pressures increase after moderating due to a recent fall in global oil prices.


The carry trade -- borrowing in Japan at low rates and lending in the US at higher rates -- has been an important source of financing for hedge funds for the last 5+ years. So long as the interest rate differential is still advantageous for the trade it will continue.

Tomorrow the US Federal Reserve will issue its interest rate policy decision. While there has been speculation the Fed will lower rates soon, I still think that is wishful thinking. We'll have to see how their official statement comes out, but I doubt we'll see much meaningful change.