Mizuho Corporate Global: Japan Goes Negative on Rates

Feb 15, 2016, 04:25 ET from Mizuho Corporate Global

TOKYO, February 15, 2016 /PRNewswire/ --

Mizuho Corporate Global: Just when investors thought the central banks had run out of ammunition, in early February BoJ unloads negative interest rates, but will it be enough? 

Asian markets received a shot in the arm last week when Haruhiko Kuroda, often described as the "fightingest" governor in global central banking, lived up to his reputation for leaving no stone unturned when it comes to monetary policy tools and turned Japanese interest rates negative for the first time ever.

The move is doubly surprising for the markets since, only a little over a week before making the announcement, Mr. Kuroda had told Japan's Parliament that neither he nor the Bank's Monetary Policy Committee, were giving any serious consideration to using negative interest rates. The announcement of a shock cut in interest rates to minus 0.1% prompted a 3% rally in Japan's Nikkei 225 Average and spurred a much-needed and overdue relief rally in European and US equity markets too.

"The Bank of Japan has suffered the ignominy of having to downgrade its expectations for CPI (Core Price Inflation) this year," says Frank Temple, who as Vice President of Corporate Trading at Mizuho Corporate Global, maintains oversight of the management of $1.5bn in client funds.

Indeed, the Bank of Japan's efforts to create CPI of 2% per annum have been hampered by the deflationary effect of falling oil prices and a slowdown in the rest of the global economy. The central bank has unleashed unprecedented monetary stimulus in the form of a huge quantitative easing program but inflation has remained stubbornly below target.

The idea behind negative rates is fairly straightforward: the central bank charges commercial banks to hold the funds that they have parked in their reserves. The hope is that these commercial banks will find better returns on it by investing it or lending it to businesses and consumers.

"We're not sure that a minus 0.1% interest rate will prove enough of an incentive for the commercial banks to take their money out of the central bank coffers but Mr. Kuroda has said that the Bank is willing and ready to take rates down further," says Frank Temple.

"What we're taking away from this is the tacit confirmation from the Bank of Japan that they remain committed to creating inflation and will use all methods - conventional or otherwise - in order to achieve that goal. The merits of such a policy as an effective method for creating healthy economic conditions aside, Mizuho Corporate Global is certain that there's plenty of upside potential to Japanese stocks over the medium-to-long-term," added Frank Temple.

The firm says that it is advising its institutional clients to acquire selected stocks on dips in price citing the likelihood of further cuts into negative territory for interest rates and the potential for the current quantitative easing program to be extended.

About Mizuho Corporate Global:  

Mizuho Corporate Global is an independent, full-service brokerage, wealth management and business management concern dedicated to providing pioneering capital appreciation and wealth preservation solutions to affluent individuals and families and businesses.

Without exception, we place the welfare of our clients first and foremost and we take great pride in knowing that we are the first port of call for their investment and financial affairs. We constantly exceed our clients' expectations by going the extra mile to deliver the service and, most importantly, the returns on investment their patronage demands.

The operations based at our headquarters in Tokyo, Japan and a number of offices in the Asia Pacific region, are responsible for the diligent oversight of more than $4.5 billion-worth of assets on behalf of valued clients located in Asia and Europe.


SOURCE Mizuho Corporate Global