Bankinter | The Bank of Japan says it will not raise rates while markets are unstable. Bank of Japan Governor Shinichi Uchida stated that interest rates will remain at current levels for as long as market volatility persists. He also suggested that the BOJ will carefully consider financial market conditions before making future rate decisions.
Bankinter’s research team’s view: Uchida’s dovish message has helped calm markets. The shift towards a more restrictive policy by the Bank of Japan (raising rates from 0.0%/0.1% to 0.25%, reducing bond purchases and talking about possible further hikes) generated instability in the markets. Many funds were financing themselves in currencies with low interest rates (¥) in order to invest in other economies where they could obtain higher returns (carry trade). The BOJ policy change forced many of these positions to be unwound. The Nikkei rises +2.8% and the yen depreciates -1% against the euro (€-¥ 160.5).
