Financial Markets Update
BOJ Negative Interest Rate Policy Could Boost Growth In US
In his latest Economic Analysis, Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo Funds Management, discusses how the Bank of Japan's (BOJ) recently announced negative deposit rate could be a positive growth driver not only in Japan, but also in the US.
The motivation behind the BOJ's negative interest rate policy is to punish Japanese banks for holding reserves instead of lending them out. This has been a chronic problem in Japan for over 25 years, as central bank policy - various forms of quantitative easing - have failed to generate growth in business and household lending. Brian notes that since 2007, Japan's monetary base has grown by over 280%, yet bank lending has grown by only 10%.
In Brian's view, the BOJ's move should:
- Help Japanese companies, particularly smaller firms more dependent upon bank lending;
- Reinforce the European Central Bank's move to a negative interest rate policy, by more firmly anchoring low yields; and
- Make it even more difficult for the Fed to increase its target rate - since relative interest rates are more important than the absolute level of rates - keeping US monetary policy looser for longer, which should be good for growth.
Brian points out that "setting monetary policy is a lot of learning by doing". In that vein, he concludes that, if nothing else, the BOJ's negative interest rate policy is "better than doing the same old thing and simply praying for a different result."
The complete Economic Analysis can be accessed here.