Currency News: BOJ Latest Expansionary Monetary Policy & Russian Ruble Losing Dependency on Oil
Currency News
Bank of Japan (BOJ) Expands Monetary Stimulus After Wednesday’s Meeting
Earlier today, the BOJ had finished what many investors claim to be their most important meeting in years. Although many investors were worried that the Bank of Japan would further cut interest rates, deepening already negative rates, the BOJ had maintained rates (to take into account the past negative effects on the financial institutions in the country). Instead of changing the interest rate benchmark, or practicing quantitative easing, they have decided instead to take more control over bond yields. This had caused Japan’s 10-year government to finally rise since March of 2016. The reason is that as the central bank buys up the supply of bonds, supply is lowered causing demand to rise relative to supply levels.
This expansionary policy as well caused the Yen to fall against the USD to about 102.53. The main hope amongst the BOJ is finally able to reach the 2% inflation rate target. This hopefully will cause higher global demand for Japanese domestic products, exchange rate falls, which may help elevate their inflation levels. BOJ now owns about a third of Japanese bonds. As a result, the big question that now looms is whether this is sustainable, as BOJ is running out of options to help revamp Japan’s economy.
Russian Ruble Drops As Crude Oil Falls Yet Still Remains Attractive For Investors Abroad
On Tuesday, September 20th, the Russian ruble had fallen 0.3%, trading at 64.87 against the USD. Although this was caused by a decline in oil prices, being Russia’s main exporter in rubles, the correlation between the oil prices and the ruble has fallen to .56, the lowest all year. The reason is because the Russian ruble rising 0.7% this past month, while crude oil, in turn, has fallen 3.4% during the same period. This is positive news for investors, as Russia’s currency is widening from its dependency on oil, which comes at a time that Russia is still facing a recession as a result of harsh international sanctions and fall in oil prices over the past year.
The main catalysts for the ruble’s rise are Russia’s central bank to maintain interest rates, which are higher than most countries apart of the OECD. This has caused the currency to become an even more attractive carry trade play. In which investors borrow in another country at a low-interest rate and then invest it in another country with a higher interest rate. The profit here is the spread between both rates, and the currency ‘swap’ pushes the rubble higher. Additionally, government intervention and recent investor optimism over Russia possibly approaching an end to their recession has as well fueled a rise in the currency.