Wednesday, September 21, 2016

So, What's Going On In Japan?

From FT Alphaville:

Japanese banks apparently like a policy aimed at helping them out
Shocking, we know.
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That’s Japan’s bank Topix up almost 7 per cent after the BoJ announced its new QQE with yield control policy which will see the bank look to “control short-term and long-term interest rates” while putting forward an “inflation-overshoot commitment”.

You might remember an opposite reaction from the bank stocks to the BoJ’s decision to originally go negative… If you don’t here’s Alberto Gallo of Algebris summarising the problems:
The key issue is the sustainability of banks’ business models. As discussed at length by the BIS and ourselves previously, low interest rates support banks with a one-off gain on their government bond holdings, but they also erode profitability, equity valuations – increasing their cost of capital –and reduce the banks’ ability to lend. This is what has happened in Europe and Japan, and at the latest ECB press conference in August, ECB President Draghi specifically talked about the positive correlation between credit intermediation in the Eurozone and bank equity prices. The BoJ shares similar concerns, with some Japanese banks starting to impose negative rates on clients earlier this year. In a meeting to assess the effectiveness of QE, Mr Kuroda stated that central bankers should weigh the benefits of QE and negative interest rates on corporates and consumers with its negative impact on financial intermediation.
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More generally, here’s a rundown of the BoJ’s moves from Citi....MORE