CNBC’s Jim Cramer doesn’t understand why investors reacted positively to news that the Bank of Japan unexpectedly adopted negative interest rates.
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The BOJ said it would apply a negative interest rate of minus 0.1 percent on selected current account deposits that financial institutions hold with it, a move that will effectively charge banks interest for parking excess deposits at the central bank. The dollar surged in response, rising about three yen to an nearly six-week high of 121.495.
All sub-indices were green on Friday except for mining and oil, which retreated by 0.99 percent.
The BOJ added “The BOJ will cut the interest rate further into negative territory if judged as necessary”, in a statement. In Japan, the yield on 10-year government bonds hit an all-time low of 0.09 percent.
The broader Topix index of all first-section shares gained 1.62 percent, or 23.20 points, to 1,455.27. Michael Pearce, global economist at Capital Economics, notes that transporting and storing bills and coins is costly – equal to a 2 per cent fee, he calculates.
Chinese shares also rallied following the Japanese rate move but still suffered their biggest monthly fall for seven years.
European and Japanese policy makers have faced extra pressure to boost stimulus after the yen and euro outperformed major peers for most of this month amid demand for havens as tumbling crude oil prices and concerns that China’s economy is slowing spurred a more than US$6 trillion (S$8.5 trillion) rout in global stock markets.
This comes after BoJ Governor Kuroda said in December that the BoJ shouldn’t adopt negative interest rates, and that there is no limit as to their asset purchasing program.
The pound was down two cents against the U.S. dollar at just under 1.42, after official data showed the USA economy eased to an annual rate of 0.7 per cent growth in the fourth quarter, impacted by high inventories and a strong dollar, following 2 per cent annualised growth in the third quarter.
The yield on the 10-year bond dropped 3 ½ basis points to 0.06 per cent as of 10:20am in Tokyo from Friday, according to Japan Bond Trading Co, the nation’s largest inter-dealer debt broker.
The majority of the banks’ reserves will continue to receive +0.1%.
“We think there is an increasing risk that an improvement in the business confidence of Japanese firms and the conversion of deflationary mindset may be delayed, and that the underlying trend in prices might be negatively affected”, BOJ Gov. Haruhiko Kuroda said at a news conference.
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Brent futures settled 85 cents higher at $34.74 a barrel, while USA futures rose 40 cents to settle at $33.62.
