BOJ Launches Negative Rates With Bad Timing

The Bank of Japan’s negative interest rates came into effect on Tuesday in a radical plan already deemed a failure by financial markets, highlighting Tokyo’s lack of options to spur growth as global markets sputter.

The central bank, which announced the shock decision on Jan 29, will charge banks 0.1% for parking additional reserves with the BOJ to encourage banks to lend and prompt businesses and savers to spend and invest.

While the announcement briefly drove down the yen and buoyed Japanese share prices, markets quickly went into reverse.

“It’s getting clearer that Abenomics is a paper tiger,” said Seiya Nakajima, chief economist at Office Niwa, a consultancy, referring to Prime Minister Shinzo Abe’s policy mix of monetary easing, spending and reform.

“The impact of monetary easing is similar to currency intervention. The first time they do it, there’s a huge impact. But as they repeat it, the impact will wane,” said Nakajima.

Though senior BOJ officials were at pains to say they had calibrated only a minor impact on Japanese banks, their stock prices plunged, contributing to a global market sell-off, particularly in financial shares.

The problem was partly bad timing, as global markets were already in a tailspin over concerns about China’s slowdown, U.S. rate hikes and tumbling oil prices. But the reaction leaves BOJ Governor Haruhiko Kuroda’s assertion that his policy is having its intended effects looking increasingly threadbare.

via Japan Today

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza