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Release Explanation: The interest rate sets the tone for mortgages, commercial loans, and all economic lending criteria. “This is the single most important reason why currencies are bought and sold. A strong interest rate and robust business cycle will attract foreign investment” TheLFB-Forex.com Trade Team said. “A weak interest rate will normally lead to a weak currency as investors swap the higher yielding currency for a profit” they added.

TheLFB-Forex.com 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” TheLFB-Forex.com Trade Team says. Estimates are that the Japanese economy will contract 3% in 2009, however BoJ noted in the current statement that the economy is beginning to stabilize.

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. Earlier this week, a release pointed out that the Japanese economy contracted 4.0% in the first quarter, the most on record. Additionally, Japan’s foreign-debt rating was downgraded, citing the country’s huge debt.

The Bank of Japan also announced tonight that it will accept foreign bonds issued by U.S., U.K., Germany and France as collateral. 

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

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