? Bank of Japan introduced negative interest rates, supporting global equity
? S&P500 ends week with 1.7% gain, after surging 2.5% on Friday
? USD/JPY rises to monthly record amid BoJ policy
? Fed uses rate announcement to back away from hawkish stance
? Oil prices rise to highest since beginning of month
What started as an indecisive weekly session ended with a strong Friday note as the Bank of Japan announced the introduction of negative interest rates, for the first time in Japanese monetary policy history. According to the BoJ, the decision was approved by a 5-4 majority vote. In addition to setting rates for -0.1% for current accounts held at the central bank by financial institutions, the BoJ’s announcement added that rates will be cut further into negative territory “if judged as necessary.”
A strong reaction, unsurprisingly, has been recorded with the Yen itself, seeing USD/JPY surge approx. 2% to as high as 121.69, marking a peak of more than a month for the currency pair. Yields on the Japanese 10 year government bond dropped to just 0.095%, expressing little hope that the move would soon normalize the nation’s monetary metrics. Reaction for Japanese equity was somewhat mixed, as the Nikkei 225 initially gained about 3%, which later dissolved, as markets expressed distrust that the move will really boost the Japanese economy. Positively, however, aided by oil’s backwind (see below) global equities responded positively, with the DAX rising 1.6% during the day, and the S&P500 surging 2.5%, which concluded to a 1.7% weekly increase.
The BoJ’s announcement was preceded with one of the Federal Reserve. Burden here was quite high as on the one hand, we had December’s rate hike, which meant that any dovish comments would bite into the Fed’s credibility. On the other hand, with major U.S. indices losing about 7%-8% into the year, hinting of another rate hike was due in March definitely had negative potential.
Leave A Comment