The BoJ Cuts Its Rate To 0.3% And Will Provide Stimulus
Tuesday, 4. November 2008, 04:57:48
Edward Hugh writes in Seeking Alpha that the Bank of Japan cut its benchmark interest rate today to 0.3 percent and also decided to begin paying interest on reserves commercial lenders hold at the bank to provide liquidity to the financial system and trimmed the Lombard rate - the cost it charges for loans made directly to member banks - to 0.5 percent from 0.75 percent.
Prime Minister Taro Aso decided yestreday to postpone the national election that polls suggest could have seen him and his ruling LDP party being pushed out of power. He also announced an "economic revival" package, worth an estimated $275 billion, of which $50 billion would come from new spending (and the quantity of new money needed would undoubtedly have been higher if the BoJ had not "conveniently" cut interest rates today. The details we have so far on the package suggest it is set to give large tax breaks to home mortgage holders, extend tax cuts for capital gains, lower highway tolls and give loans to small businesses.
Commentary
Bank of Japan 0.5% yen carry trade financed traders started to go short the emerging markets, EEM, and the Japanese shares, EWJ, on May 19th, 2008, when the Bank of Japan met to discuss policy. Peak currencies occurred in late July 2008, when the BoJ 0.5% financed yen carry traders aggressively sold the EUR/JPY short; this stimulated a rise in the Yen, FXY, and a fall in the price of Japanese shares. A lending crises arose on September 11, 2008, that is 9-11-2008, when the bank found they could not issue stock to raise capital, this resulted in a breakdown of lending, that is a stoppage in lending, as is seen in the fall of HYG.
The ongoing Yahoo Finance Chart of EURJPY compared to EWJ, EEM and HYG ... EURJPY compared to EWJ, EEM and HYG
Prime Minister Taro Aso decided yestreday to postpone the national election that polls suggest could have seen him and his ruling LDP party being pushed out of power. He also announced an "economic revival" package, worth an estimated $275 billion, of which $50 billion would come from new spending (and the quantity of new money needed would undoubtedly have been higher if the BoJ had not "conveniently" cut interest rates today. The details we have so far on the package suggest it is set to give large tax breaks to home mortgage holders, extend tax cuts for capital gains, lower highway tolls and give loans to small businesses.
Commentary
Bank of Japan 0.5% yen carry trade financed traders started to go short the emerging markets, EEM, and the Japanese shares, EWJ, on May 19th, 2008, when the Bank of Japan met to discuss policy. Peak currencies occurred in late July 2008, when the BoJ 0.5% financed yen carry traders aggressively sold the EUR/JPY short; this stimulated a rise in the Yen, FXY, and a fall in the price of Japanese shares. A lending crises arose on September 11, 2008, that is 9-11-2008, when the bank found they could not issue stock to raise capital, this resulted in a breakdown of lending, that is a stoppage in lending, as is seen in the fall of HYG.
The ongoing Yahoo Finance Chart of EURJPY compared to EWJ, EEM and HYG ... EURJPY compared to EWJ, EEM and HYG
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