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22 Feb 2016
BOJ unlikely to find any consolation in the January CPI report - BBH
Research Team at BBH, suggests that the Bank of Japan is unlikely to find any consolation in the January CPI report as the risk is that both the headline and core rates eased.
Key Quotes
“Although the BOJ infrequently (once a year) adjusted its asset purchase program (QQE), the introduction of negative interest rates provides a new tool that may be used more often.
The sharp decline in Japanese equities and the sharp appreciation of the yen tightened financial conditions. The world’s third largest economy has contracted in two of the past three quarters. The BOJ is likely to feel compelled to address this.
The yen’s past decline has bolstered corporate profits. In turn, this has helped fuel a rally in Japanese shares, assisted by BOJ purchases of ETFs. That was then. Now, the sharp appreciation of the yen is both cause and effect of the 20% drop in share prices. The negative rate on some deposits raises concern about net interest rate margins and the profitability of Japanese banks.
However, it is instructive that the Ministry of Finance has not deemed it necessary to intervene in the foreign exchange market. Even officials' words of caution have been quite mild in tone and scope. It flies in the face of claims of currency wars that continue to be widely touted.”
Key Quotes
“Although the BOJ infrequently (once a year) adjusted its asset purchase program (QQE), the introduction of negative interest rates provides a new tool that may be used more often.
The sharp decline in Japanese equities and the sharp appreciation of the yen tightened financial conditions. The world’s third largest economy has contracted in two of the past three quarters. The BOJ is likely to feel compelled to address this.
The yen’s past decline has bolstered corporate profits. In turn, this has helped fuel a rally in Japanese shares, assisted by BOJ purchases of ETFs. That was then. Now, the sharp appreciation of the yen is both cause and effect of the 20% drop in share prices. The negative rate on some deposits raises concern about net interest rate margins and the profitability of Japanese banks.
However, it is instructive that the Ministry of Finance has not deemed it necessary to intervene in the foreign exchange market. Even officials' words of caution have been quite mild in tone and scope. It flies in the face of claims of currency wars that continue to be widely touted.”