The BoJ took forex markets by surprise this morning, leaving its rates unchanged and announcing a new $120 billion lending facility aimed at fighting deflation. As collateral for the new funds to the economy, the BoJ is willing to accepts a wide range of debt with lower ratings from commercial banks for a three month period. In its statement the BoJ reiterated its forecast for continued deflation, but also for a moderate recovery in 2010. The overnight cash rate was left on hold at 0.1% surprising some market-watchers who had been anticipating a further cut in rates which in previous years have reached negative levels. The government of Japan has recently been signaling to the BoJ that it wants something done to support economic growth in 2010. The BoJ's decision not to cut rates strengthened the Yen briefly against the other majors, but it has since retraced. The Nikkei 225 closed nearly 2.5% higher as equity traders greeted the news positively.

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