Crisis Diary as it unfolds ….

Japan goes ZIRP .. well, almost

Fighting with the worries of rising Yen, Japan was quick to react. Although, Japan probably showed some defiance by reducing the interest rate from 0.3% to 0.1% but still leaving it marginally above zero. 

At the heart of japanese worries is ZIRP (Zero Interest Rate Policy) by it’s trading partners esp. by US and probably by UK.

Bloomberg reports

jpy

The Fed’s reduction brought the U.S. key rate below Japan’s benchmark for the first time since February 1993, making the yen a higher-yielding currency. The yen has gained 25 percent this year, eroding profits for exporters that are already cutting jobs, production and spending as global demand collapses.

 

Interest rate really didn’t matter much in Japan in last decade. It was zero thru most of the decade and recently had touched 0.5% level. But rise of zero/low interest policies across the globe, which result in dramatic JPY rise against most world currencies, put Japan in awkward spot as it started losing it’s interest differential edge.

When Japs did not know where to invest  their excess wealth and sell their excess production as their economy was not consuming enough and thereby not growing at all, they started exporting goods and financing capital to the rest of the world. Now, with this economic downturn, even world has turned its back to Jap capital and subsequently Jap goods are losing their competitive advantage due to rising Yen.

Nobody knows what’s the way out of this crisis for Japan. But one thing is sure, rate cut is not going to matter at all and vindicating this JPY reacted neutrally to the move.

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December 19, 2008 - Posted by | News | , , ,

1 Comment »

  1. […] to stimulate its economy. From February 1999 to August 2000 the Bank had pursued a so-called “zero-interest-rate policy”. The interest rates fell down to zero (real interest rate didn’t decrease), but the economy […]

    Pingback by The development of deflation during the financial crisis of the 1990s in Japan | gethimtolse | March 2, 2011


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