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The BoJ and its (sort of) negative interest rate

  • Kuroda once again pulled a headline-grabbing rabbit out of the hat, with the announcement of a ‘negative’ interest rate on excess reserves.
  • But, as ever with recent BoJ announcements, the devil is in the detail.
  • And today’s announcement could well mark the beginning of the end for a QQE programme that has proved successful in raising underlying inflation.

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Japan: Recovery in recess

  • The BoJ appears overoptimistic about Japan’s economic outlook and we expect the 2% inflation target to remain well out of reach over the coming couple of years. 
  • But the economic recovery is probably just in temporary recess and we do not expect a return to recession. And we think the BoJ will continue to resist the urge to ease policy further.

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Greece's threat of euro exit has cheated it of a recovery

  • As the money runs out in Athens, signs are that the Greek Government is inching towards a last-minute deal.
  • But the damage done to the Greek economy during the negotiations has been immense.

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Grexit: Avoiding the slippery slope

  • The Greek government’s reshuffle of its bailout negotiating team has raised hopes that a deal will be reached to avoid default and euro exit. And that remains our baseline scenario.
  • But not least due to difficult domestic politics and the amateurish nature of the government, the risk of a disorderly end to Greece’s membership of the euro remains significant.

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BoJ: The end of the easy bit?

  • Contrary to some market participants, we do not expect the BoJ to amend policy this week.
  • An upbeat economic forecast will be used to justify leaving policy unchanged, while the BoJ will fear that the benefits of additional easing might not stack up against the risks.

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