Forex Dictionary

Interest Rate Announcement

Interest Rate Announcement

Each month the Bank of Japan (BOJ) Monetary Policy Committee (MPC) votes on where to set the nation's short term interest rate (i.e., "overnight call rate"). Shortly after each vote, the MPC releases a statement that contains the outcome of their vote. While no commentary is provided, a press conference regarding the economic conditions that effected their decision is held a few hours afterward. A rising trend in interest rates has a positive effect on the nation's currency. Short term rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. High interest rates attract foreigners looking for the best "risk-free" return on their money, which can dramatically increases demand for the nation's currency. The decision on where to set interest rates depends mostly on inflation. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates in an attempt to bring prices down.