Japanese Yen Mixed As BoJ Leaves Rates Unchanged, Industrial Output Weakens

The Japanese yen is mixed on Tuesday after the central bank announced that it was leaving interest rates unchanged and raising its economic growth forecasts for 2020 and 2021. Tokyo also reported disappointing industrial production and capacity utilization data, despite the federal government spending billions in stimulus.

As widely expected by financial markets, the Bank of Japan (BoJ) left its key short-term interest rate unchanged at -0.1% and maintained the target for its 10-year bond yield at 0% during its January meeting. Policymakers revised their growth projections for fiscal year 2019 from 0.7% to 0.9%, citing fiscal stimulus and easing trade tensions. They also believe the economy will grow better than initially estimated in the next fiscal. The BoJ anticipates that inflation will continue to be below 2% until 2022.
Last month, Prime Minister Shinzo Abe unveiled a $120 billion stimulus package. The federal spending initiative is aimed at reversing the downward trend and offset the declines in consumer spending after Tokyo introduced a national sales tax hike.
The BoJ’s decision comes soon after the International Monetary Fund (IMF) revised its growth forecast for Japan from 0.5% to 0.7% in 2020.
On the data front, according to the Ministry of Economy, Trade and Industry, industrial production declined 1% in November, up from the 4.5% drop in October. The market had penciled in a decrease of 0.9%. The fall in industrial output was led by production and electrical machinery, electronics equipment, and metals. There was growth seen in transport equipment and electronic parts.
Year-over-year, industrial production contracted 8.2%.
Capacity utilization slipped 0.3% to 95.50 points in November, down from 95.80 points in October.
Next on the schedule will be trade, investment, inflation, and purchasing managers’ index (PMI) data.
The USD/JPY currency pair tumbled 0.09% to 110.08, from an opening of 110.18, at 12:54 GMT on Tuesday. The EUR/JPY rose 0.08% to 122.35, from an opening of 122.35.

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