June 19, 2019

INTEREST – MADE IN JAPAN

INTEREST – MADE IN JAPAN

Will Japan have to dig its heals in further after the US drops its rates?

Japan: Policy & Interest Rate – Thursday 02:00 AM GMT

This month’s interest rate decision by the Bank of Japan comes against a background of increasingly unstable financial markets and decreasing liquidity. The central bank increasingly remains the main buyer for its government bonds, and regional banks are beginning to feel threatened by dwindling income.

The surrounding environment isn’t very friendly, either, with contested islands in the South China Sea bringing battle ships ever closer, and no less worrisome, the China-US trade war wreaking havoc with global trade. Meanwhile, nearby, a 2nd Tiananmen Square is brewing in Hong Kong and the global econmy is tanking!

Add to that, JP Morgan’s expectation that the central bank will be compelled to lower its short-term interest rate in September to-0.3% in reaction to the US FED’s projected rate cut, and a tool created to prevent economic chaos is becoming less and less wieldy.

In short, any hopes of a return to normalcy vis-a-vis interest rates are scant.

For the past decade, negative interest rates have kept exports competitive and maximizing employment; however, inflation remains well below par, and global uncertainties seems to be the only excuse for maintaining this dovish policy.

Bank of Japan Governor Haruhiko Kuroda last Saturday claimed that the global economy will recover later this year. “There’s no change to the view the global economy will pick up in the latter half of this year .. But uncertainties remain, particularly those regarding trade,” he told a group of G20 leaders. But Government is losing patience with bankers, and there’s a limit to how low and how much longer Kuroda can go.

Chances rates will change Thursday are slim, but just as important as the actual rate decision is the policy statement for the Bank’s forward guidelines. It is that which provides the sentiment.

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