Summary: The Bank of Japan voted unanimously to keep interest rates unchanged at 0.25%. In July it raised rates from effectively zero for its first hike in six years. The BoJ's accompanying statement that "(t)he economy is expanding moderately" remained unchanged for the third consecutive time. Meeting minutes will be released on Nov. 21st. The BoJ's strategy of gradual, non-consecutive rate hikes that are mostly data dependent remains in tact. Weakness in the yen will likely continue given that another rate hike is not expected until Q1 next year at the earliest, political urging by the Cabinet for BoJ support and rate gaps between the U.S. and EU where rates are 5.25% and 3.25% respectively. Separately, producer prices increased 3.6% in September for their highest rise in more than 25 years. To make matters worse, a trade ministry report said, 'More than two-thirds of Japan's biggest companies struggle to pass rising costs on to consumers.' This puts downward pressure on corporate profit and wage growth. However, Morgan Stanley economist Takehiro Sato suggests that PP will dip below 3% y-o-y as early as this month due to "... the lagged effect of lower commodity prices." A senior economist at Mizuho Securities warns: "The number of companies that can raise prices remains small, and the economy hasn't produced sufficient demand to stimulate price increases. Even if companies choose to raise prices, there's no guarantee that'll spur profits."
Related links: BoJ Deputy Governor Hints at Possible Rate Hike by Year's End • Nikkei Quietly Rallying - Expect a Repeat of '05? • Stephen Roach on German and Japanese Productivity Growth • Significance of the Surprisingly Weak Yen • BoJ's Tankan Surprises to Upside, Investment Implications • July GDP-related Data Down Slightly; Business Sentiment Highest among Large Co's • Bank of Japan website
Potentially impacted stocks and ETFs: iShares MSCI Japan Index ETF (EWJ), iShares S&P/TOPIX 150 ETF (ITF)
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