JPY: The world of negative interest rates – Nomura
By FXStreet FXStreet – Research Team at Nomura, suggests that the Bank of Japan hopes its negative interest rate policy (NIRP) engenders portfolio rebalancing and stimulates private demand.
Key Quotes
“In terms of the former, NIRP will likely weaken the yen by widening interest-rate differentials between Japan and other countries. In terms of the latter, lower interest rates are unlikely to strongly stimulate capex unless companies are short of cash and need to borrow. With Japanese companies currently flush with cash, we doubt that a reduction in interest costs would have much stimulus effect on demand through the capex channel.
Further rate cuts likely needed to attain inflation target
In its newly released Outlook Report, the BOJ is forecasting attainment of its +2% inflation target by FY17 H1. However, we expect the ongoing improvement in the BOJ’s preferred measures of the underlying trend in prices–ie, the core-core CPI (headline CPI ex food (except alcoholic beverages) and energy) and headline CPI ex fresh food and energy–to grind to a halt. Additionally, the base wage increases negotiated in this spring’s unionized wage negotiations, which BOJ Gov. Haruhiko Kuroda is closely monitoring, look likely to be somewhat restrained. Given such an environment, the BOJ will likely ease again.
NIRP’s …read more
Source:: FX Street
