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.
