Bank of Japan Not Expected to Raise Interest Rates

Carry trades have rebounded strongly today thanks to the drop in market volatility. The VIX index has fallen another 2 points and is now close to 40 percent off its 4 year highs. The Bank of Japan will be announcing their monetary policy decision tonight. Given their repeated liquidity injections and the overall turmoil in the credit markets, the BoJ is not expected to raise interest rates.

They will however be releasing their monthly report. Economic data has not been that hot over the past few weeks which suggest that the central bank could be a tad more pessimistic about growth. Last night Japan released their July merchandise trade balance which dropped from Y1223.4B down to Y671.2B. The drop in supermarket sales also worsened last month. The only saving grace is the continual demand from China. Exports to China increased 20.6 percent year over year. The Asian Giant is expected to shelter most of the region from any major subprime related fall-outs. China announced earlier this week that they will be allowing their citizens to start investing in the Hong Kong stock market. The markets see this as one of the country?s first moves toward more open markets and in the future, they expect China to also allow investments in countries like Tokyo and Singapore. There is a lot of money at stake. JPMorgan estimates that at least $100bn of the country?s $2,300bn in individual savings will leave China over the next year, with outflows increasing to $500bn over the next 3 years.