Bank of Japan’s chief Haruhiko Kuroda surprised markets on Wednesday by changing monetary policy by debuting a zero interest-rate target rate for its 10-year government bonds to fight deflation.
Global markets gyrated on the news not knowing what to make of the decision, before moving higher later on.
The thought behind the measure is to punish savers with no interest on the 10 year notes so they will spend to battle deflation, while insuring that the banks would not be harmed with negative rates on the notes.
As we have seen here in the US, when older savers are getting much interest on their savings, they double down on their savings in order to eke out more interest. They do not spend, since they are cautious for their retirement. These are the portion of the population with the greatest amount of disposable income, yet they are squirreling away that cash in savings.
At 2pm we get the decision from the Federal Reserve on rates. Markets are looking at no rate hikes, despite all the jawboning over the last three weeks. Also Fed chief Janet Yellen will not be able to say the next meeting is on the table, since it is scheduled to be too close to the presidential election.
All this hand wringing of a quarter point rise in rates, I can’t fathom how bad the US economy is that it can’t handle the rate rise.
Perhaps the White House does not want stocks to crater from its all-time highs on the news, since that will tarnish the Obama Miracle and Hillary Clinton’s using the legacy in her run.
Will Yellen pull a new policy out of her hat, like Kuroda? I don’t believe so.
We will get: “The job market is strengthening, while our inflation outlook is running below trend.” which means nothing to average Americans.
But it allows the Fed to do nothing, and kick the can down the road.