BOJ Stays Put at 0.50% as Fukui Makes His Exit
The BOJ policy board voted unanimously to keep interest rates at 0.50% today. The move was widely expected by the markets.
The larger story is Toshihiko Fukui himself, for whom this was the last policy meeting as the bank’s Governor. Until recently, Fukui’s deputy Toshiro Muto was the leading candidate. However, Muto now faces stiff opposition from the Democratic Party of Japan (DPJ) that controls the upper house of the Diet (Japan’s parliament) and is able to block the nomination. They allege that Muto’s 37 years with the Ministry of Finance far outweigh his 5 years with the BOJ, questioning whether the central bank can truly retail its independence under his leadership.
Whoever steps into Fukui’s role on March 19th will have their work cut out for them - Japan faces mounting risks to growth as slowing US demand and a stronger yen erode export growth. Japan’s consumers are famously reluctant to up their spending in response to a lowering in borrowing costs, and at current rates there is not much room to ease in any case.
On balance, Chinese demand has been unwavering, keeping Japan afloat as the US slows. While much remains uncertain, we can surely expect a good amount of yen volatility before a clear direction can be seen.
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