Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic growth. Economic strength can create Inflation, raising Interest Rates is one of the easiest ways to contain Inflation. The Governments Finance Ministry dominate the Bank, whatever they want they get.

Trade Desk Thoughts: The Bank of Japan decided by a unanimous vote to maintain the Overnight Call Rate at 0.10%.

Having the lowest rate amid industrialized countries, economists argued that the low interest rate will not provide strong enough relief to the Japanese economy, and that the central bank has mostly depleted its powers to influence the business cycle by using monetary policy. Estimates are that the Japanese economy will contract 3% in 2009, up from 2.0% just a few months ago.

The main reason for the marked deterioration of the Japanese economy is the slow internal and external demand, which had drastically reduced the export market. The economy is forecast to recover in late 2010. The central bank estimates the CPI read will fall to -1% in 2009.

At tonight’s meeting, the BoJ said it will buy $11.0 billion in corporate bonds. This decision would theoretically strengthen the Japanese financial system, first by increasing liquidity, and secondly it will bring down the spreads on corporate bonds.

Forex Technical Reaction:
The pair had no reaction to the news release. Since the Asian session started, the yen fell 30 pips