ASIAN STOCK MARKETS PARTY WITH JAPANESE BAZOOKA
So, it is justified now, there is a definite co-relation between our cricket team and BSE Sensex. Both are on a winning spree. Our Sensex jumped 400 points closing at 24870 and our cricket team won T20 series in Australia. But Mr. Haruhiko Kuroda would be asking, didn’t I do something. Yeah actually, he hosted the party and we all enjoyed. Bank of Japan adopted negative interest rates joining ECB and other European countries to fight deflation. Japanese banks will be charged a negative 0.1% in case they keep balances over and above the regulatory requirement with their central bank. In simple language, the Japanese central bank is following carrot and stick policy with its commercial banks, they have to lend aggressively and if excess cash is kept they will have to pay interest to Bank of Japan at 0.1%. This seems to be the last resort for the Abe government to spur growth.
The most amazing thing is that most central banks are following similar policies. But what they forget is that banks cannot bring about economic growth by increasing their loan book. The first and foremost ingredient for economic expansion is favorable investment climate and liquidity is just a part of it. Japanese economy which has been fighting deflation for decades now, requires structural reforms, but that is the difficult part, infusing liquidity is easy.
May be next time ECB and Bank of Japan will give a joint statement with inflation target of 2%, interest rates pushed further into negative territory and of course increasing stimulus. So the party goes on and on…… and Sensex goes beyond 27000 again and India wins the T20 World Cup, remember positive correlation.