World stocks jump as Bank of Japan rate goes sub-zero

Feb 12, 2016, 12:49
World stocks jump as Bank of Japan rate goes sub-zero

The Bank of Japan (BoJ) has introduced a Negative Interest Rate Policy (NIRP), via a complicated 3-tier policy rate, with one of those rates at -0.10%.

The greenback booked gains of more than 1 percent against the euro (EUR=), British pound (GBP=), and Swiss franc (CHF=) after the GDP figures were released, moving the dollar into positive territory on the month against each currency.

'A weaker yen should, for now at least, be a boost to exporters and we would see funds having exposure to that sector the key beneficiaries and funds exposed to financials taking a hit, ' Allen said.

The BOJ joined monetary authorities across Europe in betting that central bank rates below zero will cut borrowing costs for companies and households, driving demand for loans as well as encouraging investment in higher-yielding assets.

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"It looks like there will be a competition on negative rates with central banks including the ECB", said Ms Mari Iwashita, chief market economist at SMBC Friend Securities.

The radical intervention provided an immediate boost to stock markets around the world after a dramatic start to the year that saw trillions of dollars wiped off their value in a matter of days. Australia's S&P/ASX 200 added 0.6 percent to 5,006, while South Korea's Kospi closed up 0.3 percent at 1,912.

The three-month euro-yen interest rate futures 0#JEY: jumped with the benchmark June contract rising to 100.01 or an interest rate of minus 0.01 percent. Brent crude, a benchmark for global oils, gained 31 cents to $35.11. The Shanghai Composite Index has lost 22.6% since the start of the year.

BOJ Governor Haruhiko Kuroda said the central bank adjusted policy due to worries about a delay in eradicating a deflationary mindset, adding that the central bank won't hesitate to ease further to reach its inflation goal.

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On Friday, the bank said it had not ruled out a further cut.

- A rate of zero percent will be applied to the reserves that institutions are required to keep at the BOJ, and also the reserves related to the bank's various lending support programs. Later on Friday, investors will turn their focus to USA fourth-quarter gross domestic product data, which is expected to show a slowdown in growth. The BoJ on Friday warned over the decline in crude oil prices and uncertainty about "future developments in emerging and commodity-exporting economies, particularly the Chinese economy".

"It was a surprise to most market players who thought negative interest rates would be a last resort", said Koichi Fujishiro, senior economist at Dai-ichi Life Research Institute.

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