The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates
- The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates
by Tyler Durden, www.zerohedge.com
As we noted earlier, in a paradoxical U-turn, one which caught everyone by surprise as a result of Kuroda’s own promise just one week ago not to engage in NIRP…
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… and two months after the ECB’s December 3 disappointing announcement led to a historic surge in the EUR, today countless macro hedge funds have been left reeling with huge losses once again, as many had recently turned bullish on the Yen…
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… only to be eviscerated by the BOJ’s negative rates announcement. So what happened? Reuters has an amusing take, one which we doubt many macro HFs will find quite entertaining:
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Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.
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The paradox, of course, is that by “striking”, Kuroda slammed precisely those who were meant to benefit the most from the BOJ’s action: financial institutions. To be sure, it is not just hedge funds who will be left reeling but Japanese banks themselves, because as a result of negative rates, their NIM will go horizontal and lead to even more pronounced losses, something European banks – such as Deutsche Bank – have discovered the hard way over the past year and a half.
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There are other problems with the BOJ’s seemingly chaotic, if not panicked, decision: as Reuters adds, “a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.”
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In a note released this morning, Goldman itself warns that it has “concerns” about Kuroda’s act, the key one being that while it crushed many market participants, the BOJ’s action will have no benefit for the actual economy (and in fact it will end up hurting banks whose NIMs are about to pancake):
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read more.
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