Japan's currency depreciated and its stock market rose after the country's central bank surprised markets by resorting to negative interest rates in a "pre-emptive strike" against deflation.
A number of fund managers cheered the news, saying it would boost investor confidence. "The Bank of Japan's move symbolises its determination to cope with fears of deflation and not to give up on its 2% inflation target," said Yoshimi Hashimoto, portfolio manager at Fidelity International.
Other analysts were less sanguine. Some feared the interest rate cut would have only modest effects, while others said it exposed the limitations of Japan's quantitative easing policy.
Joost van Leenders, chief economist of multi asset solutions at BNP Paribas Investment Partners, remarked the Bank of Japan's governor, Haruhiko Kuroda, had previously ruled out negative interest rates. "It may be that Kuroda wanted to foster his reputation for policy surprises, but we believe that this decision smacks of desperation," he said.
Most commentators saw the move as a precaution against a slowdown in China and the start of interest rate hikes from the US Federal Reserve. However, they fear Japan could invite a response from other nations leading to competitive devaluations.
Keith Wade, chief economist at Schroders, said that, "despite the market reaction, [Japan's] move comes out of weakness and also raises the risk that China may retaliate with a further depreciation of their currency. If so, we will have entered a new phase in the currency wars where countries fight over a limited amount of global growth, an outcome which does not bode well for risk assets."
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