Exiting the world’s last negative rates, Japanese Yen down or up
Exiting the world’s last negative rates, could the Japanese Yen see a significant reversal?
Fundamental Key Points:
1. The Bank of Japan may exit its negative interest rate policy established since February 2016 in the coming months.
2. Given Japan's avoidance of a recession, core inflation rate (excluding food and energy prices) has been continuously above 2% for over a year but recently showed significant softening.
3. As the world's fourth-largest economy, Japan's latest revised GDP data shows that private consumption has shrunk for the third consecutive quarter, narrowly avoiding a technical recession.
USDJPY
Analysis:
1. Considering the potential decline of the U.S. dollar, arbitrage traders might exit long positions.
2. Due to the Federal Reserve's dovish stance, no immediate rate cuts are anticipated.
To prevent a retracement in USDJPY, watch the 147.9-148.3 area.
In
EURJPY
EURJPY:
As the European Central Bank seems to be avoiding the topic of rate cuts, if the Bank of Japan is currently unable to consider cutting rates, the Japanese yen's weakness may persist. EUR/JPY continues to trade above the 160.20 support level; as of now, the price is significantly higher than the 200-day moving average.
In
GBPJPY
:
The bullish scenario might be more optimistic. If the Bank of Japan doesn’t change its policy next week or possibly in April, given the British pound's strong performance against the U.S. dollar and yen this year so far, GBP/JPY could maintain some appeal. The key support level is 188.25.
Tips: What is negative interest rate, the history, reasons, and impact of Japan’s negative interest rate
Negative interest rate is an unusual monetary policy where the central bank sets the benchmark interest rate below 0%.
In this scenario, deposits in banks might gradually decrease instead of earning interest like traditional deposits. This means banks charge fees for funds deposited, rather than paying interest.
The purpose is to encourage banks and other financial institutions not to hoard cash but to inject it into the economy, such as by lending to businesses and individuals, to promote consumption and investment, thereby stimulating economic growth.
However, the actual impact of negative interest rates depends on whether banks pass on these costs to ordinary savers. In many cases, even though central banks may set negative rates, banks might choose not to charge retail customers for small deposits, as this could lead to customer loss. Typically, negative rates affect large deposits and institutional investors more than ordinary savers' small savings.
The history, reasons, and impact of Japan’s implementation of negative interest rates is a complex topic. The Bank of Japan (BoJ) is one of the major central banks to have implemented negative interest rates early on.
Implementation time: Japan first implemented negative interest rates in late January 2016, reducing its deposit rate to -0.1%.
Background: This decision was made against the backdrop of Japan's long-standing economic stagnation and low inflation rates. Japan has been struggling with low growth and deflation since the burst of its asset bubble in the early 1990s.
Reasons
1. Stimulate the economy: Aimed to stimulate the economy by encouraging banks to lend and businesses and individuals to consume and invest.
2. Avoid deflation: Japan has long faced the risk of deflation, and negative rates were an attempt to increase consumption and investment by lowering borrowing costs.
3. Extension of monetary policy: Japan had been implementing quantitative easing for many years, and negative rates were seen as a further loosening.
Impact
1. On banks: Negative rates put pressure on banks' profits, as it narrows their interest margin.
2. Economic growth: While there was some stimulative effect, the overall impact on economic growth was limited.
3. Currency depreciation: Initially led to yen depreciation, benefiting exports, but long-term effects were limited.
4. Depositor behavior: This could lead depositors to change their saving habits, seeking other ways to store value, such as buying safe assets.
5. Asset bubbles: Prolonged low rates might lead to rising asset prices, increasing the risk of financial market bubbles.
Fundamental Key Points:
1. The Bank of Japan may exit its negative interest rate policy established since February 2016 in the coming months.
2. Given Japan's avoidance of a recession, core inflation rate (excluding food and energy prices) has been continuously above 2% for over a year but recently showed significant softening.
3. As the world's fourth-largest economy, Japan's latest revised GDP data shows that private consumption has shrunk for the third consecutive quarter, narrowly avoiding a technical recession.
USDJPY
Analysis: 1. Considering the potential decline of the U.S. dollar, arbitrage traders might exit long positions.
2. Due to the Federal Reserve's dovish stance, no immediate rate cuts are anticipated.
To prevent a retracement in USDJPY, watch the 147.9-148.3 area.
In
EURJPY
EURJPY:
In
GBPJPY
:
Tips: What is negative interest rate, the history, reasons, and impact of Japan’s negative interest rate
Negative interest rate is an unusual monetary policy where the central bank sets the benchmark interest rate below 0%.
In this scenario, deposits in banks might gradually decrease instead of earning interest like traditional deposits. This means banks charge fees for funds deposited, rather than paying interest.
The purpose is to encourage banks and other financial institutions not to hoard cash but to inject it into the economy, such as by lending to businesses and individuals, to promote consumption and investment, thereby stimulating economic growth.
However, the actual impact of negative interest rates depends on whether banks pass on these costs to ordinary savers. In many cases, even though central banks may set negative rates, banks might choose not to charge retail customers for small deposits, as this could lead to customer loss. Typically, negative rates affect large deposits and institutional investors more than ordinary savers' small savings.
The history, reasons, and impact of Japan’s implementation of negative interest rates is a complex topic. The Bank of Japan (BoJ) is one of the major central banks to have implemented negative interest rates early on.
Implementation time: Japan first implemented negative interest rates in late January 2016, reducing its deposit rate to -0.1%.
Background: This decision was made against the backdrop of Japan's long-standing economic stagnation and low inflation rates. Japan has been struggling with low growth and deflation since the burst of its asset bubble in the early 1990s.
Reasons
1. Stimulate the economy: Aimed to stimulate the economy by encouraging banks to lend and businesses and individuals to consume and invest.
2. Avoid deflation: Japan has long faced the risk of deflation, and negative rates were an attempt to increase consumption and investment by lowering borrowing costs.
3. Extension of monetary policy: Japan had been implementing quantitative easing for many years, and negative rates were seen as a further loosening.
Impact
1. On banks: Negative rates put pressure on banks' profits, as it narrows their interest margin.
2. Economic growth: While there was some stimulative effect, the overall impact on economic growth was limited.
3. Currency depreciation: Initially led to yen depreciation, benefiting exports, but long-term effects were limited.
4. Depositor behavior: This could lead depositors to change their saving habits, seeking other ways to store value, such as buying safe assets.
5. Asset bubbles: Prolonged low rates might lead to rising asset prices, increasing the risk of financial market bubbles.