Japanese economic and monetary officials will appeal to the G20 to find a response to the turmoil in financial markets and the Governor of the Central Bank rejected the idea that they can be explained by the new policy of negative interest rates recently implemented in Japan.
Stressing the growing concern of the Japanese authorities before the fall of the stock market, Prime Minister Shinzo Abe held talks Friday with the Governor of the Bank of Japan (BoJ), Haruhiko Kuroda, for the first time in nearly five month about the developments in the global economy and financial markets.
“I explained the designs of the BoJ on the quantitative and qualitative easing with negative interest rates and its effects,” said Haruhiko Kuroda told reporters after the meeting. He added that Abe had not made any specific comments on monetary policy.
The Tokyo Stock Exchange fell by another 5% Friday, falling to a low of 16 months, while the yen remained at levels close to a recent high of 15 months, the Japanese currency being pushed up by the risk aversion leading to the unwinding of positions by investors financed in yen (carry trade).
The evocation by Finance Minister Taro Aso of possible currency intervention has failed to weaken the currency. “Recent movements in the foreign exchange market have been very sudden. I am watching these movements with great nervousness and we will take appropriate action if necessary,” said he said at a press conference after the cabinet.
The strong yen is an additional worry factor for the BoJ whose negative rate policy adopted last month could not stop the fall of the stock market in a context of widespread slump in equity markets.
THE NEGATIVE RATE convince PAS
Taro Aso and other officials of the Ministry of Finance said they would look to see if they can reach a common position with their G20 counterparts to policy coordination, during their meeting in Shanghai, 26 and 27 February.
“There are many deep-seated problems behind the recent market movements. Of course, we must consider how to promote policy coordination in the context of the G20,” said Friday to reporters the “Mr. yen “from the Japanese Ministry of Finance, Masatsugu Asakawa.
Haruhiko Kuroda had earlier said that the negative rate policy would help stimulate the economy by lowering financing costs, sweeping criticism from those who believe it exacerbated the market turbulence because of its potential impact on profitability and the financial health of banks.
“I do not think (the recent turmoil on financial markets) is attributable to the negative rate of BoJ policy,” he said in Parliament.
“An aversion to excessive risk spreads among international investors,” he said, adding that it would monitor closely the impact of recent market developments on the economy and prices in Japan.
He reiterated that the BoJ will not hesitate to further ease monetary policy if necessary to achieve its objective of bringing inflation back to 2% annual rate.
BOJ surprised markets last month by announcing the passage into negative territory for one of its key rates while market volatility since the beginning of the year and slowing global growth hamper its fight against deflation.
The policy of negative interest rates will do little to achieve the inflation target, however, believe a majority of economists. Fifteen of the 18 of them polled by Reuters between 5 and February 12, said they did not make more probable the achievement of the inflation target of 2% annual rate.