The Bank of Japan stunned markets Friday, when in a 5-4 vote, the Bank of Japan’s board imposed a 0.1% fee on deposits left with the Bank of Japan, effectively a negative interest rate.
The U.S. dollar climbed against the Japanese yen Friday to the highest level in six weeks following the BOJ decision.
All sub-indices were green on Friday except for mining and oil, which retreated by 0.99 percent.
The BOJ move follows that of the European Central Bank (ECB), which in June 2014 became the first major central bank in the world to use negative interest rates.
– A rate of zero percent will be applied to the reserves that institutions are required to keep at the BOJ, and also the reserves related to the bank’s various lending support programs.
Mr. Nakahara said that a fall in oil prices wasn’t bad for Japan, even though it had rattled global markets. Shares on Wall Street and in Europe rose more than one per cent, as did MSCI’s all-country world stock index, which gained 1.56 per cent. Despite the rally, the benchmark has fallen 8 per cent this month.
“It has become clear that stock markets cannot stand on their own feet”, said KBC senior economist Koen De Leus, in Brussels.
Germany’s 10-year Bund yield fell 7 basis points to 0.26%, its lowest since last April.
Two-year German bond yields touched a record low of minus 0.471 percent.
The price of Federal Fund rate futures are pricing in barely one rate hike this year while the rate-sensitive USA two-year yield fell to three-month low of 0.766 per cent on Friday. Investors hope that talks could lead to production cuts that would begin to alleviate a global supply glut.
The West Texas Intermediate for March delivery moved up 40 cents to settle at 33.62 dollars a barrel on the New York Mercantile Exchange, while Brent crude for March delivery increased 79 cents to close at 34.74 dollars a barrel on the London ICE Futures Exchange. That put oil on track for a second weekly gain, though volatility has climbed to its highest since 2009 as traders try to price in the uncertainty around supply cuts.
The Nikkei share index whipsawed, but closed 2.8% higher. That could make European exports more expensive, while reducing the cost of imports at a time when the European Central Bank is trying to stoke inflation. “Midday today (Sydney time) will provide us a chance”, said Richard Grace, chief currency and rates strategist at Commonwealth Bank.
In our view this reaffirms the BoJ’s commitment to achieving its inflation target, and should help contribute to a more positive backdrop for risk.
But January was a tough month for USA markets, as well, despite recent gains.