The bank of Japan decided not to change its interest rate policy at its most recent meeting (Thursday 28/4/16) and did not indulge in any fresh, substantive, monetary easing actions which many had anticipated. The upshot of this was a steep reversal of recent gains made against the Yen with the Dollar falling back from a high of 111.8 to bottom out at 106.3.
Had the BOJ taken any significant monetary easing steps then the value of the Yen would probably have fallen – instead a decision not to soften monetary policy led to a surge of cash towards the Yen, spiking its value (at least for a while…) and reversing a softening trend that had taken hold by the second week of the month. Inevitably, this will hamper Japanese exports to some extent. Exporters were already complaining that a strong Yen was harming their prospects.
Unsurprisingly, the Nikkei has taken a bit of a hammering since the BOJ decision was announced, falling from 17290 on Wednesday to 16174 at Monday’s close – a 6% fall. The Nikkei started the year above the 19000 mark and remains the only major index to still be significantly lower than it was at the start of 2016. This fact is due to the jitters over the Chinese economy and the oil price (both of which have faded of late) and the fact that in torrid times, the Yen is seen as a safe haven, pushing its value up, putting negative pressure on the Nikkei and making life harder for Japanese exporters.
In the USA, the Federal Reserve also decided to keep its powder dry and leave rates unchanged. The Fed’s move had been widely anticipated although many believe rates will edge up at at least two meetings in the course of the year – half of the number planned for 2016 when rates were first increased in December 2015.