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How to grasp the opportunity as Japan ended its negative rate policy?

Japan ended its negative interest rate policy
On March 19, 2024, the Bank of Japan announced it would raise interest rates for the first time since 2007, moving off its first-ever policy of negative rates that it began using nearly two decades ago to boost the economy. The Bank of Japan increased its overnight borrowing rate for banks to a range of between 0 and 0.1%, from minus 0.1%. Backed by the April policy meeting and economists' poll, it indicates another interest rate hike in 2024. This policy change is not only of interest to Japan's economic condition but has spillover impacts on a number of sectors.

How has it influenced the markets?
The BOJ's seismic policy shift will resonate across financial markets. The economy will have to adjust after having interest rates held down at low levels by negative rates for so many years. Here are the main affected markets.

  • Currency markets: Japan's new policy has been affecting the weakness of its currency. the Japanese Yen plunged dramatically and hit a 34-year low against the US dollar on Tuesday, April 23, 2024. In the forex trading industry, huge market volatility has been witnessed by the investors in the past few weeks.
  • Stock market: Higher interest rates would raise the cost to business of borrowing money, which would in turn reduce corporate profits and result in lower stock prices. Investors who have an excessive allocation to Japanese equities might witness a decline in the value of their holdings.
  • Bond Market: Fixed income is very interest rate-related. Yields on Japanese government bonds are expected to rise from their extremely low levels under "yield curve control".

Moreover, this change in policy will also have a significant impact on real estate, consumer expenditure, insurance, pension funds, etc. With a view to planning a fresh rate hike, this is likely to carry a huge impact in the long-term.

What can we do as investors?
With substantial changes taking shape across global financial systems, all investors would be wise to evaluate their portfolios carefully. The individual holding in the portfolio should be scrutinized for those that have exposures to Japanese markets or currency fluctuation. Reinvestment in Japanese bonds or other fixed-income securities can bring attractive yields under today's rate policy. Further, the weakening Yen of Japan is potentially creating opportunities in the forex market for those trading in highly volatile pairs like USDJPY, which could bring exponential returns. Ultimately, any investment decisions should be along the lines of a risk profile and goals.

For investors looking for opportunities in forex trading, partnering with a reliable broker can make things easier. JRFX is an online regulated broker offering a wide range of trading instruments, including currency pairs like USDJPY, CADJPY, GBPJPY, and many others. Zero commissions and competitive spreads, combined with 24/7 customer support, makes JRFX indeed one of the best choices among many for global investors.

The information provided is for informational purposes only and should not be considered as financial advice. Trading CFDs carries risk, and investors should carefully evaluate their risk tolerance and conduct independent research.
Currently, the Fed's interest rate is still high and the BoJ's interest rate is still low even though it has exited negative interest rates, this provides an opportunity to buy USDJPY with potential gain because the strengthening of the USD affects the Japanese Yen exchange rate, however, Japan will try to ensure that the exchange rate does not continue to depreciate, some time ago Japan intervened which caused USDJPY to fall rapidly
Ending a negative rate policy in Japan could impact various financial markets and instruments, including the forex market. Traders might anticipate changes in the value of the Japanese yen against other currencies, particularly if the policy shift affects interest rate differentials and investor sentiment. To seize opportunities, monitor central bank announcements, economic data releases, and market reactions closely. Consider how the policy change might influence currency pairs involving the JPY and adjust trading strategies accordingly to capitalize on potential movements.
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