Market Overview

Heard Of NIRP? The Controversial Economic Policy Is Backfiring

Share:
Heard Of NIRP? The Controversial Economic Policy Is Backfiring

A negative interest rate policy (NIRP) is a rather unconventional monetary policy tool that allows nominal target interest rates to be set with a negative value, lower than the theoretical floor of zero percent. The mechanism is aimed at stimulating economic growth and sustaining inflation levels.

According to the Bank of Japan's Principal Figures of Financial Institutions, the average domestic lending balance rose 2 percent in March; this represents a slowdown from February’s 2.2 percent and January’s 2.3 percent. Over March, deposits also rose 3 percent.

Related Link: What Happened With Fannie And Freddie In 2008? We May Never Know

Since the NIRP was announced on January 29 and implemented on February 16, business sentiment deteriorated. Deutsche Bank analysts Yoshinobu Yamada and Takayasu Kudo "are doubtful whether CFOs of companies would increase their leverage even if interest rates were to fall somewhat."

The experts also looked into the impact of the NIRP on banks, which are unlikely to see corporate credit improve any further. "A cut in interest rates would only increase their risk, giving them little incentive to actively boost their lending," the analysts said, attributing the expansion of the loan-deposit gap to a rising deflationary mindset caused by NIRP.

"The loan-deposit gap has been filled to date by JGBs and BoJ current accounts, and we expect that trend to continue for some time," Yamada and Kudo continued.

It's true that banks can still earn positive yields by increasing their foreign bond investment. However, this implies price swing risks. In fact, "Few banks are likely to pursue equity investment aggressively given the eventual 250% risk weight would be applied."

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Posted-In: Bank of Japan BOJ Deutsche Bank NIRPAnalyst Color Economics Markets Analyst Ratings Best of Benzinga

 

Related Articles (EWJ + JYF)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
ARAVH.C. WainwrightReiterates31.0
QCOMCascendReiterates110.0
KMPHH.C. WainwrightReiterates2.5
HASusquehannaInitiates Coverage On27.0
BFRABenchmarkMaintains18.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

The Papal Approach To Investing: A New Catholic Values ETF

Buy Bank Of America, Sell JPMorgan: Fast Money Picks For April 20