Bank of Japan Maintains‌ Interest Rate, Expects Moderate Economic Recovery

Investing.com- The Bank of Japan announced on Friday ⁤that⁣ it would ‌maintain its current interest rate, pausing increases and expecting a moderate economic recovery. The ⁢decision to keep the overnight lending rate target ‍unchanged at 0.25% was unanimous and⁢ in ⁤line ⁤with market⁢ consensus.

The announcement led to a slight increase in the yen, which rose ⁢by 30 points before falling back ‍to‌ 142.16.

Morgan Stanley has revised‌ its risk outlook on the U.S. dollar to neutral, recommending a long position on the yen against the U.S. dollar​ and other‌ risk-sensitive currencies. This is ‌due to growing concerns about a potential hard landing in the‍ U.S. economy. The current foreign exchange market is characterized⁣ by a “defensive” mechanism, which may lead to a‍ future bear market in the U.S. dollar. Historical trends suggest that going long on the yen is‌ an effective ⁢trade in ⁣such a ‌scenario.

Wall Street banks predict that the Bank of Japan‌ will raise interest rates in January next year. ⁤Goldman Sachs notes that economic data and inflation trends have been in line ⁤with expectations ⁣since⁣ the Bank ‍of Japan raised interest rates in July. ⁢Japan’s ⁣second-quarter GDP grew by 0.8% quarter-on-quarter, and rising wages have been partially transmitted to service prices. However, it may take‌ time for inflation to rebound, ​making January next ‍year the ‍”optimal” time for the Bank of ⁣Japan​ to⁣ raise interest rates again.

Bank of America Merrill Lynch predicts that the Bank of Japan⁢ may raise interest ⁤rates to 0.5% in January 2025 and further increase them to 0.75% in the second ⁢half of next year.​ The normalization of policy may depend on ​the⁤ outlook for the U.S. economy.

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