BOJ Gov. Kuroda’s move could save financial markets: Reorient
Bank of Japan Governor Kuroda’s move on Friday to apply a negative interest rate policy not only shocked the markets, but let the world know that Kuroda, “has plenty of ammunition left to affect the economy and has no compunctions about using whatever he judges to be required,” according to Reorient Financial Markets, an Asia-focused investment bank.
“The bank will apply a negative interest rate of minus 0.1% to current accounts that financial institutions hold at the bank. It will cut the interest rate further into negative territory if judged as necessary,” said the BOJ policy statement.
Global markets liked what they heard and stock and currency markets around the world rose on the news.
Reorient thinks that Kuroda’s move will have far reaching repercussions. Not only will it go a significant way toward “mitigating the negative impact of the US Fed’s ‘ridiculous’ (Fed historian Meltzer) policies of last year and its entirely unaccountable rate hike into a sharply slowing economy, but it most likely will lead European Central Bank President Draghi to ease further as well.”
Draghi is scheduled to deliver the ECB’s annual report to the European Parliament on Monday.
With the BOJ and ECB easing, and the People’s Bank of China supplying ample liquidity to markets through tools equivalent to monetary easing, Reorient said that “the global market and the global economy could at least be saved from further deterioration and – in the case of equity markets – experience temporary remission from the January of discontent.”
With the US growth numbers slowing, there’s a greater chance of the US falling into a recession than the Fed raising interest rates again soon.
Reorient recommends an overweight position in longer-dated US Treasuries as prices of the 30-year bond have done well year to date.
Just a few days ago, the year looked doomed if you followed the old Wall Street saying, “As goes January, so goes the year.” Kuroda might have pointed the way toward making it untrue, said Reorient. But caution remains the watchword in the run-up to the Chinese New Year holidays and China’s Year of the Monkey promises more volatility.