Analyst – BOJ’s rate policy will burn the nation in long run

A head analyst at Lindsey Group, Peter Boockvar, has said that if the Bank of Japan (BOJ) continues with their policy of negative interest rates it will cause irreparable damage to the country’s long term economic landscape.

“To be honest I think it’s suicidal,” he said. “All they are doing is compounding their own issues by artificially creating inflation for a population who aren’t seeing their salaries go up. How is that logical? It’s like they are trying to wave a magic wand at the moment and hoping their problems are going to vanish.”

There were a few raised eyebrows on the trading floors last week when the BOJ decided for the first time in history to introduce negative interest rates. The outcome of this strategy, in real terms, is that banks will pay fees for any excess funds they are keeping in their vaults.

The decision on negative rates was a split vote at the BOJ’s meeting last week, testimony to dissenting voices in the boardroom.

“They tried easing techniques, it’s obvious that tactic has now failed,” Boockvar continued. “If negative rates are their last throw of the dice then it looks to me like a disaster waiting to happen.”

The BOJ said the decision to push rates to negative territory was based on a report by some of the country’s leading investment and trading firms, including CITIC Tokyo International, which showed markets improved slightly in the last quarter due to increased corporate and private spending.

The central bank added a caveat however, saying the current small tick in inflation may be hampered in the near future due to volatility in emerging markets and price fluctuations in raw materials.

The bank previously declared a 2 percent inflation target, but recent data has forced them to project only 0.1 to 1.3 percent for the next quarter.

Fed keeping rates unchanged in gloomy global climate

In a decision that was widely expected by the financial world, the Federal Reserve has announced it will not introduce any interest rate hike in the near future and is “keeping a close eye” on the global financial climate.

The dollar has been strengthening over the past few months and the Fed remarked that this had a negative effect on the country’s economic expansion, slowing it due to declining exports.

A hike did occur last month, which raised the key rate to around 0.3 percent. It was the first interest rate increase in nearly ten years.

In a press release on Tuesday after a three day meeting, a spokesman for the central bank said that they are “looking carefully at a number of different developments” in the economy and their implications for various industries.

In their announcement, they gave no clear signs of when a further hike would occur, but said they expect inflation to continue increasing and the US labour market to remain solid.

An unexpectedly mild winter caused a decline in retail sales and household spending resulting in a downturn in the US economy in November and December last year.

Compounding the problems in the world’s number one economy has been the relentless decline in crude prices, hitting decade long basement levels at below $30 per barrel, mainly due to the slowing expansion in China, which knocked global stocks badly.

CITIC Tokyo International, an investment firm which deals mostly in the Chinese market, said that trading may be halted again in the coming days because of concerns over the decline.