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March 10, 2016

Is Japan’s Negative Interest Rate Policy Effective?

Is Japan’s Negative Interest Rate Policy Effective?

Credit growth in Japan slowed down last February. Bank of Japan’s data quoted that it only rose to 2.2% from the previous year. That number is lower than January’s 2.3%. On the other hand, the deposit rate rose to 3.1% on February, higher than January’s 2.9%.

The deceleration did not occur until the central bank implemented the negative interest rate policy. In contrast to what was planned, the policy was set in order to stimulate the credit. The board of directors of BOJ, led by Haruhiko Kuroda, set the interest rate on -0.1% level. In the voting process, the ratio of those who agreed the negative interest rate policy and those who did not was 5:4.

The inflation rate target is considered hardly achievable as the world crude oil price is low and the salary growth is decelerating. The raise of the oil price lately could not afford to optimize several countries’ inflation rate target.

The negative rate policy implementation contributed to the strengthen of Japanese Yen last February. In such condition, it is possible that the Japanese would respond further by implementing a stimulus policy.

Recently, USD/JPY is on 112-113 level and repeatedly trying to penetrate this level. The Japanese Yen currency is too strong in such rate policy condition. Thus, regarding the trade of USD/JPY currency, long position is considered as a quite safe position. Commitment of Trader data has also shown a decrease of short position, which is 5.197% along with a 1.694% increase of long position.

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