Is The BOJ Move The Latest Volley In A Global Currency War?

The world economy continues to shrink and what happens on one side of the globe has a boomerang effect everywhere else. The Bank of Japan shocked markets Friday by introducing negative interest rates in an attempt to push inflation and growth by pressuring people away from saving money and towards spending more. The drastic action had the immediate desired effect of depressing the yen to a new low.

Is the BOJ move the latest volley in a global currency war between regions? Europe, which is battling its own economic stagnation does not want to see the euro gain in value against other major currencies as it would make European exports more expensive, while reducing the cost of imports at a time when the European Central Bank is trying to stoke inflation.

Japan has now joined several other countries with negative interest rates that include Germany (and the rest of the eurozone) and Switzerland.

Negative interest rates in Japan increase the already high probability of the ECB taking its rates even deeper into negative territory.

THE BANK OF JAPAN SHOCKED MARKETS FRIDAY BY INTRODUCING NEGATIVE INTEREST RATES IN AN ATTEMPT TO PUSH INFLATION AND GROWTH…

Draghi Still Confident

Meanwhile, ECB President, Mari Draghi, promised last week that the European Central Bank could pump out more money as early as March if necessary if it needed to give stocks a lift and send the euro lower against the dollar.

The ECB has kept interest rates unchanged and said it would continue to buy government bonds and other assets at a rate of 60 billion euros ($65 billion) a month.

The ECB president admitted, however, that the outlook for the eurozone economy had clearly worsened since December due to uncertainty about global growth, volatile markets and geopolitical risks and that it be necessary to review and possibly reconsider the ECB monetary policy stance at its next meeting in early March.

According to Draghi, “There are no limits to how far we’re willing to deploy our instruments.” This implies the possibility of increasing the pace of asset buying — or quantitative easing — or cutting interest rates to record low rates.