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Global Daily: Japan lowers the policy rate into negative territory for the first time

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Financial Markets

 

Global equities rallied and the Japanese yen fell on Friday after the Bank of Japan surprised investors by adopting a negative interest rate.  The MSCI world stock index rose 0.8 percent with Japanese shares closing almost 3 percent higher.  Notwithstanding, the gauge is down 7.2 percent for the month.  The yen tumbled 2.3 percent versus the dollar to 121.56 yen, and it fell 1.4 percent versus the euro to 131.77 yen.

 

Government bond yields across Europe and Japan fell further following the Bank of Japan’s unexpected monetary stimulus, pushing the amount of sovereign debt yielding below zero percent to a record $5.5 trillion.  Yields on Japanese, French and German securities reached record lows on Friday.  It is estimated that about half of all government bonds in Europe carry negative yields, led by Germany, Finland, and Switzerland.

 

 

Advanced Markets

 

U.S. real GDP growth slowed to 0.7 percent (q/q saar) in Q4 2015 from 2 percent in Q3, according to the advance estimate of the Bureau of Economic Analysis. Negative contributions from private inventories, exports and nonresidential fixed investment more than offset positive growth in private consumption, residential investment and federal government spending. For 2015 as a whole, real GDP was up 2.4 percent, expanding at the same pace as in 2014.  

 

Inflation in the Euro Area is expected to accelerate to 0.4 percent (y/y) in January 2016, compared with 0.2 percent in December 2015, according to flash estimates. The expected up-tick would be a 15-month high, led by increased prices of services and food.

 

The Bank of Japan loosened monetary policy further at its January meeting, in a surprise decision to lower its benchmark interest rate from zero to -0.1 percent. The authorities also reconfirmed that the monetary base will continue to be expanded by about ¥80 trillion per year, in a continuing effort to spur economic momentum and move closer to the 2 percent inflation target.

 

 

Emerging and Frontier Economies

 

Europe and Central Asia

 

The Bank of Russia left its benchmark one-week repo rate unchanged at 11 percent as the most recent oil price plunge sent the ruble to fresh record lows of 85 per U.S. dollar last week thus increasing inflation risks.

 

 

Latin America and the Caribbean

 

Preliminary data indicate Mexico’s GDP expanded 0.6 percent (q/q) in Q4 2015, slowing from a 0.8 percent expansion in Q3, but beating economists’ expectations of 0.5 percent. The services sector was the main driver of expansion while agriculture shrank and industry showed no growth. On a yearly basis, the GDP advanced 2.5 percent slightly down from the 2.6 percent increase in Q3.  Considering full 2015, the economy expanded 2.5 percent compared to 2.1 percent in 2014.

 

 

Sub-Saharan Africa

 

South Africa’s trade surplus increased to ZAR 8.2 billion in December from a downwardly revised ZAR 0.7 billion surplus in November and beating market expectations of ZAR 4.9 billion. It was the highest value since December 2010, as exports dropped 5.1 percent while imports fell at a much faster 13.3 percent.

 

Kenyan consumer prices rose 7.8 percent (y/y) in January 2016, compared to a 8.0 percent growth in December and slightly below market expectations. The upward pressure came mostly from food and non-alcoholic drinks, driven by El Nino, which brought heavy rains and caused problems in transportation and agricultural sector.