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Sunday, April 05, 2020

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Report: Japan adopts negative interest rates
The Bank of Japan (BOJ) adopted a negative interest-rate strategy in the face of a weakening economy and a global slowdown, showed a report by the National Bank of Kuwait (NBK).
 
The move to penalize banks' reserves will be added to the BOJ's asset-purchase program already in place. With a 5 to 4 vote, BOJ Governor Haruhiko Kuroda introduced a negative rate of 0.1% on certain excess holdings of cash, it said, adding that the decision came after year on year inflation came at -0.3% where expectations were for a flat number. Industrial production and household spending also weakened, which prompted the BoJ to intervene on Friday.
 
Last week, BoJ governor Kuroda said there were no signs that the global economic slowdown had damaged Japan corporates plans; however the move clearly proves policy makers have acted in an attempt to avoid Japan entering in a major slowdown, it said.
 
In summary, the BoJ adopted the same strategy as the ECB in an attempt to tackle inflation and the Yen reacted instantaneously tumbling after the announcement. The negative rate interest rates policy takes effect on February 16 and will operate similar to programs in Europe, it added.
 
Clearly, the measures taken by the BoJ are aimed at cheapening the currency. Similarly to the Euro, the negative rates should encourage investors to choose the Yen as a funding currency, the report indicated.
 
On the US economy, the report said the Federal Open Market Committee (FOMC) decided on Wednesday to keep interest rates unchanged, however, signaled that they are "closely monitoring" global economic developments and were not ready to abandon their tightening policies for the year. The decision did not come as a surprise considering the drop in global equities since the last meeting, it noted.
 
The FOMC blamed the recent slowdown on weak net export prices and the decline of inventory investment, while still acknowledging improvements in the US labor market and household spending, the NBK's report said.
 
On the European economy, the report showed that German retail sales declined unexpectedly in December from November, but growth for the full year came in at its strongest for more than 20 years.
 
Retail sales fell by 0.2% in December from the previous month, after a 0.4% increase in November. Expectations were for a 0.2% increase in December. Retail sales were however 1.5% higher in real terms in the year to end-December, it noted.
 
On a different front, German inflation for January was in line with expectations. CPI inflation increased by 0.4% over the year from 0.2% in December. The pickup reflects the fact that prices fell by 1.5% over the month of January 2015, the report concluded.
 
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