Expecting A Hold, But Secretly Wanting A Cut To 0.25%
Written by A Forex View From Afar on Friday, October 31, 2008After the Federal Reserve cut interest rates by 50 basis points yesterday, markets have shifted their focus to the Bank of Japan, which is expected to hold firm the overnight lending rate, but there is rising speculation they will cut 25 basis points.
Speculation is increasing for a cut although just one week ago the chances for such a movement were minimal. If the bank does cut, as is speculated, the overnight rate will fall to 25 basis points, and remain the lowest among the developed countries.
The rate cut might see more support from the government rather than from the central bank. The Japanese economy may face a prolonged slowdown, as exports slide due to international tensions and the stronger yen. In the past, BoJ Governor, Masaaki Shirakawa, declared that the current rates are dangerously low.
However, if the central bank does not cut, the Japanese Yen may continue to strengthen. Looking at how the markets have reacted to risk lately, in the case of a hold decision from the bank, it would not be out of the question for the yen to test the 94.00 and 90.00 areas again.
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