According to Lead Capital Partners, the Bank of Japan has joined the European Central Bank and those of Denmark, Sweden and Switzerland by introducing negative interest rates in an effort to encourage banks to lend more money to businesses and consumers.
The move surprised markets sending stocks higher and the Japanese yen lower against a basket of currencies including the US dollar. Japan, the world's third biggest economy, is still battling weak growth and price inflation despite unprecedented monetary stimulus in the form of a huge quantitative easing program. The latest move - a cut to -0.1% - is being seen as increasing pressure on banks to lend money rather than parking it at the central bank.
"Negative interest rates effectively charge commercial banks to keep money on deposit at the central bank. We're not sure of just how much of a disincentive a minus 0.1% interest will provide but the Bank's governor, Haruhiko Kuroda has said that he's prepared to go further in order to achieve the central bank's target for 2% inflation," explained Lead Capital Partners' Asian markets strategist, Solomon Greenhaus.
In the post rate-decision press conference, Mr. Kuroda blamed weakening global economic growth for spurring the move but fresh core inflation data out of Japan on the same day as the BoJ statement will almost certainly have influenced its decision.
"The voting officials at the BoJ will almost certainly had advance sight of Japan's 0.1% December core inflation rate before deciding to take rates negative. 0.1% is far below the Bank's target so we think there's a lot more to come in the way of stimulus and, consequently, select Japanese stocks will continue to be firmly held in our portfolio," added Greenhaus.
About Lead Capital Partners:
Lead Capital Partners is an independent investment management practice founded on the philosophy that an active, opportunistic and adaptable approach to investing provides our clients with the best chance for the realization of long-term positive returns irrespective of prevailing market environments.
It is our firm belief that the "buy and hold" investment strategy that has traditionally served investors to such great effect over the decades can, now, lead to significant losses in bear markets, or to little or no profit in markets that persist in trading in ranges unless they are actively managed by seasoned professionals such as those at Lead Capital Partners.
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By Lucas Powel