Friday, January 29, 2016

"Will Japan’s negative interest rate really help the economy?"

Applying Betteridge's law of headlines we get a 'No', while consulting the Magic 8-Ball results in, wait a moment, "Reply hazy try again".
Well there you go.

From FundStrategy:
The Bank of Japan’s move to introduce negative interest rates revealed the Japanese QE program has not worked, experts say, who remain skeptical as to whether the move will actually work for the economy.

Japan reduced its benchmark rate to -0.1 per cent in a shock move announced today, meaning commercial banks will be charged by the central bank for some deposits. The new measure will start on 16 February.

The central bank, led by Haruhiko Kuroda, also said it will push the rate even lower “if judged as necessary”.

Hargreaves Lansdown senior analyst Laith Khalaf says the BoJ’s move shows how “twitchy” policy makers are getting about the faltering global growth and the potential for deflationary pressures to get “out of control”.

He says: “Taking a step back it seems that if throwing 80 trillion yen at the problem each year has proved insufficient, the Bank of Japan may soon find itself unscrewing the kitchen sink.”

Experts are doubtful on the real benefit the rate cut will have on the Japanese economy.

To justify its move, the BoJ said although Japan’s economy continues to recover “moderately”, but that uncertainties over developments in emerging markets and China will remain.

Fidelity’s Kok Wei Yee, portfolio manager of the Japan Active Growth fund, says the move from BoJ is a welcome boost for global investor sentiment and business confidence but the actual impact on company funding rates in Japan or the real economy is “not that big”.

He says: “In terms of overall impact this is actually smaller than the BoJ’s previous easing measures. However, the recent market sentiment fear is probably more of a crisis of confidence, given the uncertainty over China and the uneasiness as the US Fed begins a phase of interest rate hikes....MORE