Stock markets around the world rebounded yesterday, ending a highly volatile month with a bang after the Bank of Japan unexpectedly slashed interest rates into negative territory for the first time. Wall Street was expected to open with similar gains. The European Central Bank slashed interest rates below zero past year to push down borrowing costs and prod banks to lend more. The blue-chip index has passed the 6,000-point level in today’s session after the BOJ cut its benchmark interest rate below zero in an effort to boost its economy. The US dollar is down 8 points 99.51 trading near recent highs.
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Ten-year Japanese government bonds saw yield tumble to an unprecedented 0.09%, while the yen declined 1.87% against the USA currency to 121.03 yen, as it headed to the largest one day fall in more than 12 months. “We are struggling to see how this story is reversed in the coming quarters”, said Rob Carnell, economist at ING Financial Markets.
Friday’s move to penalise a portion of banks’ reserves complemented the BOJ’s record asset-purchase programme, including ¥80 trillion (RM2.7 trillion) a year in government-bond purchases, which was kept unchanged at the board meeting.
The Nikkei share index .N225 whipsawed, but closed 2.8 percent higher. Investors hope that talks could lead to production cuts that would begin to alleviate a global supply glut.
USA crude added about 1.2 percent to $33.61 per barrel and Brent futures also gained 1.2 percent to $34.28.
This can help beat back deflation – an environment in which consumers defer spending on the expectation that prices will be lower in the future, hurting demand for goods and services, and therefore economic growth.
The stock market capped a roller coaster week with a rally on Friday as investors took heart from a stronger domestic economy plus a surprise Bank of Japan stimulus-the latter a key factor behind a regional surge.
Update: Japan has stunned markets by moving to negative interest rates in a bid to protect its ailing economy from market turbulence. “Pressure on the BoJ will mount to do even more in coming months to attain their inflation target”. The Nasdaq Composite Index jumped 107.28 points, or 2.38 percent, to 4,613.95.
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TMB noted that a sharp drop in Japanese and U.S. bond yields on Friday, minus 14 and 13 basis points respectively, indicated inflows into global bond markets. In response to the question of how low the negative rate could go, the bank didn’t provide a clear reply, yet said that similar multi-tier systems are used in Switzerland, Sweden and Denmark, which have negative rates of minus 0.75 percent, minus 1.1 percent and minus 0.65 percent, respectively.
