"The BoJ's NIRP Will Result In More Currency Wars And Global Growth Slowdown"

Tyler Durden's picture

As reported previously the Bank of Japan, which not even the most optimistic central bank watchers had expected would unleash anything remotely as aggressive to prevent price discovery, stimulate asset prices and boost the exporting of deflation, became the latest central bank who, after a 5 to 4 vote, unleashed the monetary neutron bomb of Negative Interest Rates in the process pulling an anti-Draghi and shocking markets, even if admitting it can no longer boost QE due to previously discussed concerns it would run out of monetizable bonds in the very near future.

The initial market reaction was one of shocked surprise, with the Yen crashing and risk soaring, subsequently followed by disappointment that QE may be now be officially over and the BOJ will be stuck with negative rates, and then euphoria once again regaining the upper hand if only for the time being as yet another central banks does all it can to levitate asset prices at all costs, even if in the long run it means even more deflationary exports from all other banks and certainly China which will now have to retaliate against the devaluation of its "basket" of currencies.

The BOJ's excuse was simple: everyone else is doing it: as Kuroda said quickly after the NIRP announcement, the BOJ’s monetary policy is “just the same as central banks in the U.S. and Europe,” and “doesn’t target currencies.” Well, it does target currencies, but he is right: it is the same as policy in Europe and the US, where as a reminder, NIRP is coming next.

The Japanese government loved it, of course, since recent Japanese data has been ugly and getting worse, and since it allows Abe to punt all reform policies to the BOJ. Sure enough, moments ago Chief Cabinet Secretary Yoshihide Suga spoke to reporters in Tokyo. He said that the BOJ made the appropriate decision and that he welcomes BOJ’s new method aimed at achieving 2% inflation target, adding that he "can sense the BOJ’s strong determination." He said that a delay in hitting price target due to factors such as lower oil prices than expected.

A full summary of the BOJ has done comes from Goldman which frankly was even more stunned today than after the BOJ's Halloween 2014 "Yen massacre"when Kuroda boosted QE. Here is what Goldman said:

BOJ surprises with negative interest rate


The Bank of Japan (BOJ) surprised by introducing a negative interest rate of 0.1% at the Monetary Policy Meeting (MPM) on January 28-29, while maintaining its monetary base target and Japanese government bond (JGB) purchasing program. Our base scenario called for additional easing at end-April, with today’s move seen as our risk scenario. The Bank called this move “Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate” and it was passed with a 5-4 majority vote.


We think the BOJ intended to cause a strong announcement effect on the forex market in particular, by implementing the measure Governor Kuroda had explicitly denied the idea of resorting to until now, when financial markets remaining volatile and macro data poor. The Bank said it is prepared to lower the interest rate further into negative territory if it decided this was necessary.


In specific terms, the BOJ will introduce a three-tier system for the outstanding balance of each financial institution’s current account at the Bank: a positive interest rate (for the basic balance(1)), a zero interest rate (for the macro add-on balance (2)), and a negative interest rate (for the policy-rate balance (3)).

  1. The basic balance refers to the balance accumulated thus far by each financial institution under QQE. The BOJ will continue to apply a positive interest rate of 0.1% to this balance, with the aim of preventing pressure on the earnings of financial institutions.
  2. The macro add-on balance is the amount outstanding of the required reserve held by financial institutions subject to the Reserve Requirement System, among others, and will be increased as the QQE program makes progress going forward, using a currently unknown calculation method.
  3. The policy-rate balance is the amount outstanding of each financial institution's current account at the Bank in excess of (1) and (2) above. This balance will increase with new transactions. The BOJ will impose a negative interest rate of 0.1% on this balance.

The Outlook for Economic Activity and Prices (Outlook Report), also released today, cut the fiscal 2016 core CPI outlook to +0.8%, from +1.4% in October, as we expected. It also pushed back the timing for achievement of the 2% price stability target by six months to “around the first half of fiscal 2017,” from “around the second half of fiscal 2016.” It only fine-tuned other forecasts.


Governor Kuroda’s press conference will be screened live from 15:30 JST today, and attention is likely to focus on the reasoning that led to the introduction of a negative interest rate at this stage after the BOJ had continued to reject it thus far. The introduction of a negative interest rate could suggest the BOJ is close to its limit for purchases of JGBs.


An important reason cited when the BOJ maintained its monetary policy in October last year was the strength of price trends, which it gauges by referring to the CPI index that excludes energy and fresh food prices (new BOJ core CPI). Thus attention is also likely to focus on the logic that led to today’s decision at this stage when that index is still robust at +1.3% in December.

BOJ framework for interest rate on current account


BOJ economic and price outlook (as of January 2016)

The BOJ’s quantitative and qualitative monetary easing program



Some other analyst reactions promptly pointed out the biggest flaw in the BOJ's action, namely the raising of doubts over policy viability:

Izuru Kato, chief economist at Totan Research in Tokyo:

  • Introduction of negative rate gives impression of policy stalemate; isn’t a dramatic turn given asset-purchase target was retained
  • There is a limit to how deep negative rate can go; further cut would prompt a reduction in retail deposit rates
  • Yields likely to fall, overall economic impact unclear

Satoshi Okagawa, global market analyst at Sumitomo Mitsui Banking Corp. in Singapore:

  • Effect of BOJ’s additional easing is uncertain given quantity is kept unchanged
  • Likely to have only limited impact over Asian currencies because dollar is more largely used in the region
  • Move may ease risk aversion, not turn sentiment completely; cites Nikkei 225 paring earlier gains

Tsutomu Soma, general manager of fixed-income department at SBI Securities in Tokyo:

  • Indicates central bank’s strong support for success of Abenomics; weaker yen normally boosts stocks, inflation
  • Length of impact depends on how strongly Governor Kuroda intends to stick to the 2% inflation target
  • USD/JPY may gradually strengthen toward 124 over next three months

Masafumi Yamamoto, chief currency strategist at Mizuho Securites in Tokyo:

  • introducing negative rates, BOJ avoids giving impression that there would be no more policy options
  • Likely to eliminate short USD/JPY positions in near term; remains to be seen whether Japan’s negative rates can offset yen appreciation pressure stemming from risk aversion

But the comment of the night came from Credit Agricole's Valentin Marinov who said, correctly, that the BOJ's easing is not supportive of risk because it will merely reinvigorates currency wars, in the process pushing the USD stronger and commodities weaker, forcing asset prices even lower. As a reminder this was DB's argument against more QE by the ECB as well.

More importantly, since "almost 60% of the households' financial assets are held in deposits. If indeed, the Japanese banks pass on some of the costs from the BoJ’s penalty rate to their depositors, this will result in a negative wealth effect, reducing the purchasing power of the Japanese consumers. Domestic demand should suffer and Japan's contribution to global growth could decrease further. The BoJ's measures thus should result in more currency wars and continuing slowdown in global trade and growth."

Here is his full remark:

BoJ easing to reinvigorate currency wars, not supportive for risk


In a surprise move, the BoJ cut to -0.1% the rate applied to a portion of the Japanese banks' current accounts. In theory, the policy should boost the effectiveness of its QE program by encouraging the banks to spend rather than save the cash they receive in exchange for their JGB holdings. In reality, the measure is aimed at cheapening JPY. Indeed, as in the case of EUR, the negative rates could encourage portfolio and FX reserve diversification out of JPY and boost its attractiveness as a funding currency. 


The BoJ actions should lead to further intensification of global currency wars with central banks around the world trying to engineer sustained competitive devaluation against the background of slowing global trade and growth as well as persistent commodity price disinflation. With its latest measures the BoJ will allow Japan to borrow more growth from its trading partners and limit the severity of the imported disinflation.


At the same time, the negative deposit rates could weigh on domestic demand and hurt the economy's growth prospects. This is because almost 60% of the households' financial assets are held in deposits. If indeed, the Japanese banks pass on some of the costs from the BoJ’s penalty rate to their depositors, this will result in a negative wealth effect, reducing the purchasing power of the Japanese consumers. Domestic demand should suffer and Japan's contribution to global growth could decrease further. The BoJ's measures thus should result in more currency wars and continuing slowdown in global trade and growth.


JPY depreciated sharply in the wake of the BoJ decision and the downside pressure could persist for now. That said, given that the rate cut could fuel more global currency wars and global growth uncertainty, it need not necessarily support investors’ risk appetite. The risk aversion we had since the start of the year could therefore persist and limit the JPY-losses to a degree. We think that other Asian currencies should remain vulnerable and we like to fade the latest bounce in both NZD and AUD especially given the slew of Chinese data next week.


We also think that currencies that are vulnerable to more central bank easing and/ or FX intervention like EUR and CHF should remain attractive selling opportunities. Against the background of raging currency wars, we remain constructive on USD and believe that GBP could be in for a short squeeze ahead of the BoE IR next week.      

And now we await for the PBOC, whose hand has just been forced by the BOJ, to respond and devalue further in the process unleashing even greater, record capital outflows and even more market volatility.

However, the best news in all of the above is that the BOJ's action takes the world one step closer to the full collapse of the central bank regime as with every incremental expansion of "emergency" policies, with every new "policy error", the monetary emperors demonstrate how naked and ultimately powerless they have been all along.

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SheepRevolution's picture

"The BoJ's NIRP Should Result In More Currency Wars And Global Growth Slowdown".

We're already there, and have been for quite some time now.

Eirik Magnus Larssen's picture

This goes against the notion that the demise of the dollar is imminent. If anything, it can be expected to strengthen further in light of these developments.

thesonandheir's picture

For the dollar to die it must first be the last man standing in terms of currencies, this is playing out exactly as suspected with the ECB and BOJ going NIRP. Next will be BOE probably.

Manthong's picture

hmm.. I saw christrina vander hoof-mouth endorse commie bernie today.

what's the name of her rag.. "the nothing" ???


KesselRunin12Parsecs's picture

So, the way I read that chart is that the BoJ fancies itself as Sisyphus...

SoDamnMad's picture


Did you mean syphillis?

Money Counterfeiter's picture

First rule of cartels is someone is going to cheat.  China?  Russia?  Someone will breakaway.  Probably China because those billions of peasants like their pork fried rice…cheap.

lakecity55's picture

"Japanese NIRP causes shipping boats to go backwards!"

"It was like the Twilight Zone," said Capt. Kuroda. "Our container vessel began to move backwards as ZIRP was announced."

honestann's picture

100% by Paul Krugman playbook.
100% by Paul Krugman playbook.
100% by Paul Krugman playbook.

Paul Krugman just seen boarding flight from Tokyo to New York... laughing.

zhandax's picture

Looks like we need to open a GoFundMe page for a sushi chef willing to make that laughing hyena some faulty fugu.

Hoi_Polloi's picture

BOJ goes full retard.

tarsubil's picture

It is like running a marathon that never ends so you take off your shoes and put broken glass on the course. Slow, painful suicide. The only way to reduce the pain is to run faster.

The lower the rates, the faster the debt has to be increased.

Wait What's picture

Wait What already pulled out his copy of Rickard's 'Currency Wars'

2011... those were the good ol' days, when countries at least tried to disguise their intent with "we're just trying to stimulate inflation! ahiuck!"

Now they're just shamelessly running around with bazookas and monetary grenades... tossing them wherever they think they'll get the biggest bang for the buck. Panic will do that to people.

"Shit just got real"


zhandax's picture

Welcome to .gub sponsored deflation 101.  It would be too convenient if we could just play the 70's backward for strategy.

enosenose's picture

Abe's last needle in place.

lakecity55's picture

Yen commits Hari-Kiri, or whatever, where that gig is when they kill themselves.

"Spend yo money! No put in bank! You take back less! Hahhahaha!"

Late onset ADHD's picture

the last time I was in tokyo...
it was 300yen to the $1...

yeah I'm old (deal with it)... but I'd love to visit again on my own dime this time - and might even be able to afford it for a few minutes @ 250 or higher...

holding my breath in 3-2-1...

hedgiex's picture

NIRP from Central Banks - It means worthless to hold these currencies ? 

SubProject54's picture

This should most definitely work out well.

Seraphin's picture

I’m a bit confused, can someone please tell what is “disinflation

Ghordius's picture

I'll try

"The BoJ actions should lead to further intensification of global currency wars with central banks around the world trying to engineer sustained competitive devaluation against the background of slowing global trade and growth as well as persistent commodity price disinflation. With its latest measures the BoJ will allow Japan to borrow more growth from its trading partners and limit the severity of the imported disinflation. "

commodity prices are going down, globally. and Japan imports practically everything, when it comes to raw materials, and so it has to export a lot to balance that

so yes, raw materials being cheaper would make Japanese products cheaper, but it would also mean that Japanese asset prices (read: stocks, RE) would have to go down if this leads to cheaper prices in Japan itself (and the whole price war on the leg down this would imply), which is a no-no-no if you operate at such leveraged levels. so the BoJ prefers to make the Yen cheaper at any cost, present and future. hence "competitive devaluation", aka "Currency Wars"

walküre's picture

you are trying to hard.. go back to the ECBs backroom and tell them to pony up already

Kuroda is making Draghi look like a 3rd grader retard

we need more and we need it soon! the ultimate currency destruction cannot be postponed much longer!!


Ghordius's picture

I could answer: "why?", perhaps followed by a "have a look at the January 2016 eurozone CPI at positive 0.4"

but the real issue in the ZH comment section is a different one, isn't it? it is that it is increasingly detaching itself from the content of the articles

the dynamics of this currency war don't make any ECB reaction to the BoJ action necessary. the "transmitting matter" for those shocks is still the dollar

walküre's picture

ZH is the mouthpiece of common sense or what is left of it. Don't pussy foot around. If anyone had even dared to mention "negative interest rates" 10, 20 or 50 years ago they would have been declared insane.

Do you know what the definition of insanity is? The CBs are insane. They only know one direction and of course it is all supported by the politics or is it the other way around? For sure, budgets, liabilities and entitlements (can't forget those!!) have to be paid come hell or high water.

We are fucked, Ghordius. What do I tell my kids? Study hard so you can work your butt of and get paid in paper that's worth less the next day than the day when you earned it?

Totally fucking demented and probably equally flawed as Islam. But we keep on trying!

spdrdr's picture

I'll try too.

Ghordius was technically correct, but unfortunately a bit verbose.

In a simple sentence:

"We are all fucked!"

The end.



herkomilchen's picture

Well, let's see here, there's this thing called "google."  I type in "disinflation" and lo and behold the magic answer is revealed:

"A slowing in the rate of price inflation. Disinflation is used to describe instances when the inflation rate has reduced marginally over the short term. Although it is used to describe periods of slowing inflation, disinflation should not be confused with deflation."

RichardENixon's picture

It can be best stated as "disinflation we got up in here is a bitch" as opposed to "datinflation they got up in there is a bitch." Depends on where you happen to be at the time.

NEOSERF's picture

yes, encouraging banks to push out more loans by first giving them free money and when they don't do anything but make loans for car purchases, go to NIRP which will simply be passed on to savers 

walküre's picture

NIRP for car loans is actually making sense. Cars are a depreciating "asset". The car makers ought to pay me every year to drive around and advertise their brand. How cool would that be?

savedeposit's picture

The problem with debt fiat money is the Goy do not whant debt or cheap credit, even not with negative interest.

Ghordius's picture

"...anything remotely as aggressive to prevent price discovery, stimulate asset prices and boost the exporting of deflation, became the latest central bank who, after a 5 to 4 vote, unleashed the monetary neutron bomb of Negative Interest Rates in the process pulling an anti-Draghi and shocking markets..."

imo still a conflation of several narratives, which do not apply evenly on the various central banks engaged in this Currency War

the BoJ is very much into "fighting deflation", yes

meanwhile, it can't "export" anything, be it inflation or deflation, at the levels possible to the FED only

which is still, followed by the BoJ, the chief entity engaged in "stimulation of asset prices", something that can be attributed to part of those markets, chiefly the megabanks, but not the ECB

sorry, but the American stock market is a completely different affair, of a completely different (American) national (and global, to be fair) interest as any other market of this planet

just witness how Bernanke was talking about the Russel 2000 index and how he claimed he was "doing something about it"

the "prevent price discovery" meme... meh. priced in what? fiat dollars? the whole brings back the question of who rules the fiat world, or what would happen if anybody would bring back "honest money" while the Global Reserve Currency is still the fiat dollar. witness gold and silver, physical versus synthetic

"pulling an anti-Draghi"... well, that's still the one and only central banker that has some "respect" in markets, isn't he? in the sense of dread, btw. by the very fact that the older, more senior and more experienced market movers have some idea of what kind of "market molestation" continental european national banks are capable of, if irked

too bad the comment area has somewhat dried up of critical comments, in the last year. I know, moaning about comments getting worse is a tradition, but lately it has become really, really worse

mendigo's picture

Is China devaluing thier currency or are they facing the reality of bad decisions past?

Is the yen going from 120 to 122 going to boost exports and help working man?

Thats fx bs.

eroc66's picture

Bizzaro World Continues to Turn.

TeraByte's picture

Being Japanese a superior race, why they still remain in the same black hole now 26 years back after the Nikkei crash, where all this started from. If there is no other honourable way out from this misery, a face saving seppuku is warmly recommended.

Dr Freckles's picture

That's what Fukushima was ...

(a giant act of self-imposed societal suicide)

(for honor's sake)

spdrdr's picture

Japanese are intellectually superior to whites on average,  and overall superior to other Asians (again on average*), although it is arguable that certain Chinese of good leadership familial stock have greater intellectual attributes over and above the general or political Japanese or other Asian norms.

(* Not including North Koreans, as there is not sufficient data available)

Sorry if I sound like a Yellow Supremacist, but hey, these are the factoids!

The whole problem is (1) Japan's somewhat racist refusal to allow citizenship to any non-Asian, and their palpable fear of letting "outsiders" run  riot; and (2) the fact that Japanese demographics means that they will die out (already commenced, where deaths outnumber births) within a generation or two.

If you think that ASIMO or any of the recent comfort-girl robots will forestall the inevitable outcome, you are part of the problem.

Japan is quite as well fucked as the USA and the EU.

It's all circling the bowl.




RiverRoad's picture

Circling the bowl my friends while the sheeple of the world hang onto the rim for dear life.  One more big flush and it's all over.

Dr Freckles's picture

The anal-currency-rebar-jammage continues ...



falak pema's picture

Given Stockman's eyeopener about the state of malinvestment in China; and the triple conundrum that the Yuan faces : Capital flights, interest rate and currency rate; all competitive economies must react to what the gorilla of the East will do.

As the Yuan devalues to keep its export competitive others will have to devalue via negative rates to do the same.

As the real economy shrinks in deflation spiral the digital bankster economy inflates in money pumping via currency deval; which increases the financial dystopia of the debt pile.

Well done FED and surrogates; we head for a big dive in the real world.

Weimar and 1929... Are the Western economies capable of saving their bacon via a protectionist firewall?

I think not!

mendigo's picture

I dont like it!

What is it?

Bismarckrises's picture

We have no more QE. Time for deflation

mendigo's picture

Another round for the house!!!

Hava nagila, hava nagila...

Kagemusho's picture

The radio or TV is on, you're tooling down the road, or listening at home, when you hear a nasty, annoying raspy warning buzzer which sounds disturbingly like a vocoder voice saying the word "Niiiirp, Niiiiirp, Niiiirp", 3x, then:

"This is the Emergency Fiscal Broadcast System. This is not a test. Please listen closely. A fiscal tectonic shift has just occured, on Honshu Island. Sudden devaluation of currency and interest rates has caused a sharp drop in values, leading to severe tremors in markets. Devaluation tsunamis will be felt first in China, and then radiating across the Pacific to North and South America, as well as Oceania. Sympathetic tremors are soon to follow in Developed and Developing Nations. If you live near a bank, withdraw and seek higher ground."

lucky and good's picture

Last year I wrote a piece that indicated a great deal of wealth would be flowing into America seeking protection from the ravages fostered upon them. This is driven by policies that were even worse than those America's leaders have chosen to pursue. The strong dollar acts like a magnet pulling wealth towards America and it may soon get much stronger.

Do not underestimate the power of cross border money traveling into the country as a driving economic force. Another thing you should not underestimate is the advantage our currency has because of its role as the world reserve currency. The article below looks into this wealth transfer.


LaForce's picture


When the Phoenix is scheduled to be reborn...


it is about time for the burning death and the ashes part, guys.

wish you all a nice ride, I don’t really believe there is much to do, so got to enjoy this - it is a moment in history the intensity of which has been witnessed by few in the human history, at least as far as I know...

And yet those current masters of the universe of ours are not very clever I guess...