Weekly Market Update

News this past week

  • Bank of Japan introduces negative interest rates
  • Fed relatively dovish
  • US GDP growth disappoints investors
  • Chinese manufacturing data signals continued contraction
  • Oil rises to above $35 a barrel

Alex Harvey, CFA shares his view:

Friday saw a long overdue arrival to the topsy turvy world of negative interest rates as Japan belatedly crashed their own party.  Their place at this table – and arguably at the head of it – has been laid for many years now as the Japanese economy has grappled with deflation for decades and data out last week showed that the Bank of Japan (BoJ) was not winning the battle to reach, and maintain, a 2% inflation target.  Since briefly hitting that target in 2014, inflation has ebbed away as it has in most advanced economies and, for an energy importer on the scale of Japan, the fall in crude prices only exacerbates the deflationary effects.  So having previous been in the ZIRP (Zero Interest Rate Policy) camp, they now join the curious but growing club of NIRP (Negative Interest Rate Policy) countries by imposing a levy on new commercial bank deposits in an effort to spur lending and spending.  Never mind the metaphorical arrows, this feels like a new bow altogether, albeit one they should have drawn many years ago and ahead of their European counterparts.

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