In last week's Weekly Impressions post (Super Mario to the Rescue?), Evidente recommended that investors take a tactical overweight position in global equities on the expectation that the BOJ and ECB would have little choice but to deliver more monetary stimulus given the persistent weakness in their economies and continued shortfall of underlying inflation measures relative to target. On Friday, the BOJ announced that it was adopting a modestly negative interest rate for new commercial bank reserves with the central bank. The depreciation of the yen and lift in global stock markets following the announcement suggests that investors understand that the move will encourage commercial banks to increase lending and that the BOJ has another unconventional policy tool at its disposal to complement its asset purchase program. Despite the narrow 5-4 majority vote in favour of the negative interest rate, the BOJ's announcement should provide investors a timely reminder of Mr Haruhiko Kuroda's determination to rid Japan of its fifteen year long deflationary mindset. (VIEW LINK)
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