The world of negative interest-rates shrinks to just the Bank of Japan

This week has been all about interest-rates and this morning has brought something really rather significant. One of the signals of that sort of thing is that few mention it. So without further ado let me hand you over to Switzerland.

The SNB is tightening its monetary policy further and is raising the SNB policy rate by 0.75 percentage points to 0.5%. In doing so, it is countering the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected. It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term.

One of the main bastions of the icy cold world of negative interest-rates has left the room. To illustrate the road to Damascus style conversion here let me take you back to the 16th of December last year.

The SNB is maintaining its expansionary monetary policy. It is thus ensuring price stability and supporting the Swiss economy in its recovery from the impact of the coronavirus
pandemic. It is keeping the SNB policy rate and interest on sight deposits at the SNB at −0.75%, and remains willing to intervene in the foreign exchange market as necessary, in
order to counter upward pressure on the Swiss franc.

What a difference 9 months makes. Also I would point out that “ensuring price stability” has in fact turned into this.

Inflation rose to 3.5% in August and is likely to remain at an elevated level for the time being.

Inflation was supposed to be 1%. So we are observing another central banking failure although as you can see partly via the strength of the Swiss Franc Switzerland  has so far avoided the worst inflation excesses seen elsewhere.

Also we see a clear change in the view on the Swiss Franc.

To provide appropriate monetary conditions, the SNB is
also willing to be active in the foreign exchange market as necessary.

So after saying it was too strong at 1.20 versus the Euro it is now too weak at er the much higher 0.95? It is hard to know where to start with that. Still they have foreign currency reserves of 884 billion Swiss Francs so should they start it would be quite some time before the ammunition locker looked empty. There would however be consequences for other markets as they bought large quantities of Euro area government bonds and also hold US equities.

Bank of Japan

By contrast the Bank of Japan announced this earlier today.

The short-term policy interest rate:
The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.


The long-term interest rate:
The Bank will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

So -0.1% and 0% although even “without setting an upper limit” has perhaps the beginnings of an echo of the Swiss in January 2015.

In order to implement the above guideline for market operations, the Bank will offer to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate
purchase operations, unless it is highly likely that no bids will be submitted.

So 0.25% is the new Zero.

The Yen

This was the state of play.

TOKYO, Sept 22 (Reuters Breakingviews)…….The yen , currently trading around 144 per dollar, is at its weakest since 1998, but more important is the rate of change. It has lost 29% since a peak in December 2020, and is down 47% over the last decade due to two quick, steep corrections in 2012 and 2014, respectively.

That was a curious view from someone with a weak grasp of mathematics because the real move has been this year not in 2012 or 14. Thus their view below is flawed too.

That’s a byproduct of Shinzo Abe’s successful war on deflation

Actually the plunge continued and reached another new low this morning as the Yen adjusted to US interest-rates some 0.75% higher and unchanged Japanese ones. It did not quite make 146 before the Bank of Japan started playing The Stranglers on its loudspeakers.

Something’s happening and it’s happening right now
You’re too blind to see it
Something’s happening and it’s happening right now
Ain’t got time to wait
I said something better change
I said something better change.

Intervention Time

There was an early warning.

Japan Top Forex Diplomat Kanda: There May Be Cases Where We Conduct Stealth Intervention ( @LiveSquawk)

According to IGIndex he added this.


That lasted less than a few hours.



If there is a role of top FX diplomat holders of the role have had an easy life since 1998, but not today. The Bank of Japan surged into the currency markets like a bull in a China shop. Through 145 then 144 and 143. That highlights one of the problems of intervening which is that the professional players will withdraw. You can pick off existing orders in the initial wave but after that there will be some option hedges perhaps ( if you are long option volatility then you owe the Bank of Japan a decent bottle of sake) but not much else.After all why take on a central bank?

This is the problem of intervention as I have pointed out before.In the initial stage the central banker can stride around the ring like a heavyweight champion. Indeed with its 8.9 trillion Yen of foreign currency assets to play with we could say like a super-heavyweight champion. The problem is that like a boxer it will run out of puff as it cannot stay there forever. Its reserves are large but in the end they will decline away. So it will have to pick its punches carefully.

By contrast this remains every single hour of the day.

In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate.  ( Federal Reserve )

So the carry in favour of the US Dollar will be 3% and rising.That creates another problem because say the Bank of Japan flexes its muscles and pushes the exchange-rate to 140.Then the carry deal is even better because you are buying the US Dollar more cheaply.


The US Dollar has been something of a wrecking ball in currency markets in 2022. It has sent pretty much everyone else to multi-decade lows exacerbating their inflation problem due to its role as the reserve currency. We have seen Japan respond today in a curious fashion because actually they dislike negative interest-rates and yet they continue to sing along with Toto.

Hold the line
Love isn’t always on time
Whoa oh oh
Hold the line

The problem is that they now find themselves trying to hold the line at 145 Yen as well. Indeed the central planning is out of control as they set not only interest-rates but bond yields then intervene in the equity market because they think it is too low and now in the exchange-rate because it is also too low for them. Is there anything else left?

Also they did try to get to 140 but look what happens when they step back.



16 thoughts on “The world of negative interest-rates shrinks to just the Bank of Japan

  1. BoE rate decision in 10 mins from now (1100gmt). GBPEUR spike upwards at 1030 in a distinct mood change for Sterling – insider info being leaked?

    • So just before they announce I will guess at 0.75% and that is the reason for a boost to the pound any less the £ will retract from current level.

        • You’ve got to assume that the BoE might actually be more on the ball than the ECB, and recognise the disinflation numbers 12 months out.

          • The Government is committed to borrowing a minimum of £1/4 trn in energy help & tax cuts alone.
            Nothing on food inflation, rent spikes.
            Energy prices do not live in a separate universe; you could compensate completely for fuel price rises, but if other essentials soar in price, the way food has, people will still turn thermostats down, so they can eat.
            Isn’t recognising inflationary pressures in a crisis more important than disinflation in a year?
            How many dying consumers are accounted for in the disinflation numbers 12 months out?

            More from The Stranglers:
            “And the First Commandment reads,
            That human flesh & blood is sacred,
            Until there is no more food.”

        • So I Was right again, they are just so predictable, raising by less than the Bank of Canada, ECB and the Fed,this just proves it, the Bank of England will never defend sterling, the housing market is its only priority now.(Dollar index seems to be forming some sort of top here, and as Shaun pointed out yesterday, something is going to give soon as the falls in currencies(£,euro, yen, Korean Wan etc) against the dollar are getting extreme, it might be THE top but we’ll have to see, so sterling might get a bounce here, despite the Bank of England doing 0.5% against the markets expectations of 0.75%, but I’m sure they will restore its downward trajectory in time. Kwasi Kwarteng is going to meet with Bailey TWICE A WEEK to……oh let me guess on the media narrative…..” to co-ordinate economic support???” or more likely to ensure they remain on message and don’t move that interest rate pin any closer to the housing bubble, independence? don’t make me laugh.

          Truss is gambling sterlings future by borrowing vast unknown sums in a “dash for growth”, how a basket case economy dominated by the housing market and the consumer is supposed to grow enough to pay the increased taxes to balance out all that debt is beyond me, but she is even borrowing money to cut stamp duty to inflate house prices – oh sorry….to help first time buyers – so the government is scizophrenically inflating house prices, trying to stimulate the economy (by splurging borrowed money as interest rates are rising) and the Bank of England is at the same time trying to cool the economy and reduce inflation by raising rates – I’ve got that right haven’t I?

          A motoring analogy would be flooring the accelrator whilst having the other foot firmly on the brake, would you do that to your car?

          As Shaun keeps pointing out “help” for first time buyers is reflected in higher prices as they rise by the equivalent amount as the drop in tax and so completley negating its benefits for the first time buyer, but as we all know on here, it isn’t for them, it is to keep house prices going up or prevent falls, what is to say the rest of the stimulus is spent mostly by the consumer drawing in more imports and making the trade deficit worse adding to downward pressure on sterling?

          Crazy doesn’t even begin to describe it.

          • KEVIN,

            I concur with most of your comments. The vote was quite close on moving 0.75% but slightly sirprised at one member seeking a mere 0.25%. It just goes to show however that members have different views of what is needed to bring down inflation to the 2% target range.

            The bounce in the £ been maintanied thus far today but I feel we could be retracting in the next few days.

            However the mini budget tomorrow will probably influence the £ either way.


        “Economists polled by Reuters last week had forecast a repeat of August’s half-point increase in rates, but financial markets had bet on a three-quarter-point rise, the biggest since 1989, barring a brief, failed attempt in 1992 to support sterling.”


        “The BoE’s Monetary Policy Committee voted 5-4 to raise rates to 2.25%, with Deputy Governor Dave Ramsden and external MPC members Jonathan Haskel and Catherine Mann voting for an increase to 2.5%, while new MPC member Swati Dhingra wanted a smaller rise to 2%.”

        UK stock market falls more on announcement, but I think it is a bit early on £ v $ I think the £ will falter later but we will see. I need to read the minutes.

        • Well I hadn’t checked on £ before I responded to your post and £ falls LOL

          The markets didn’t like BOE decission.

          The BOE will have to continued on increasing rates however and the markets go red as I though they would.

          • TBF £ had tanked well before this decision, I can’t help but think that a softly softly BoE approach might actually be a more meaningful longer term response. Disinflation might actually come sooner than we think.

  2. The problem with Japan is that their debt is way too high. If they raise rates the repayments will really start to hurt.
    The country has entered a financial death spiral where they are caught between a rock and a hard place. The USD/JPY carry trade will slowly nibble away at their currency assets and then they will be well and truly screwed.

    • Hi Rzzr

      The Japanese do have assets but they are in the private sector. Indeed they have been squeezed out of so many areas in domestic markets by the Bank of Japan they have plenty of overseas assets too. But this time around “Mrs Watanabe” has had little or no interest in bringing any home. I suppose any yield on top of a currency gain looks good. After all there have been a few losses for her ( Turkey, Argentina and probably Russia).

      These are strange times.

  3. Hello Shaun,

    Well the BoJ doesn’t have our worries thats for sure – an economy that makes stuff , all they have to do is get energy independence and they’d be laughing ( or just tell the Americans to get stuffed and pay for nat gas in Roubles !!)

    in the meantime the SS Britannic is heading towards those icebergs like the Titanic did – full steam ahead !


    PS: off on hols now for 2 weeks , much delayed cruise around the Canaries that was coofy delayed …..

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