BoJ maintains interest rate at -0.1%

The Bank of Japan (BoJ) kept its negative interest rate at -0.1% and left its stimulus measures unchanged amid uncertainty surrounding Britain’s EU referendum on the 23 June.

The negative interest rate, which was introduced in January, was held as the annual pace of its asset purchase programmed remained at ¥80tn.

After the decision, the yen hit a 22-month high, rising as much as 0.7% to ¥104.06 against the US dollar and also increasing against the pound and euro. The Nikkei average closed down 3%.

The BoJ first adopted negative interest rates to stimulate economic growth and motivate banks to lend more.

In line with economist’s expectations, Japan’s GDP grew in the first three months of 2016 at 1.3% but was revised higher from an initial estimate of 1.7%. The bank adjusted its view on consumer inflation and prices may fall slightly.

The governor of the BoJ Haruhiko Kuroda said: "Japan's economy is likely to expand moderately as a trend. The underlying price trend is improving steadily so we'll see inflation accelerate towards 2%."

Kuroda maintained the banks projection that the price target will be met by March 2018, the end of the 2017 fiscal year.

The BOJ decision to leave rates unchanged follows the US Federal Reserve’s decision to hold interest rates at 0.25% to 0.5% ahead of uncertainty about EU referendum and its effect on financial markets.

"Although the decision was widely anticipated by markets, some believed that BoJ could have surprised the markets, if not through lowering deposit rates then through increasing its scale of purchasing exchange-traded funds or Japanese government bonds," said FXTM chief market Strategist Hussein Sayed.

Reuters reported that its polls of economists expect the BoJ to ease monetary policy at its meeting on 28-29 July, after the referendum. The bank will issue new quarterly growth and inflation forecasts, assuming that global markets are stable.