The Japanese yen jumps after a surprise decision by the central bank to start liquidating the portfolio of investment funds
The Japanese yen rose during trading on Friday, ending a two-day decline against the US dollar, after the Bank of Japan kept its key interest rate at 0.5% for the fifth consecutive meeting, as expected.
The most important statement of the monetary policy statement of the Bank of Japan is:
- The board of Directors of the Central Bank of Japan decided to keep the overnight target interest rate at 0.5% for the fifth consecutive meeting, after raising the interest rate by 25 basis points in January.
- The board of Directors of the Central Bank of Japan voted on the short-term target interest rate by 7 votes to two.
The two board members called for raising the interest rate by 25 basis points (0.25 percentage points) to reach 0.75% currently.
- The central bank confirmed that the economy is recovering moderately, but noted weaknesses and warned about the risks of global trade policies.
- He also announced a unanimous decision to start selling his investments in exchange-traded investment funds (ETFs) and Japanese real estate investment funds (J-REITs).
- Data showed that the core inflation rate in Japan rose by 2.7% in August, falling for the third month in a row to its lowest level since November 2024.
- The Bank of Japan stressed that it is monitoring the impact of the trade war on financial markets, foreign exchange markets, economic growth in Japan, and inflation.
- Japan's economic growth is likely to slow down amid uncertainty over trade disputes.
In the end, the yen rose after a hawkish surprise from the Bank of Japan.
After the Bank of Japan kept interest rates unchanged as expected, the central bank announced the start of liquidation of its huge holdings of ETFs and REITs, this is an important and symbolic step away from the quantitative easing policies that prevailed under Abe.
Which indicates that the BOJ has officially started the process of reducing its holdings of non-traditional assets, and the markets expect that this may be a prelude to the BOJ raising interest rates next October.
