The grisly month of January, 2016 in the global financial markets has ended on a somewhat brighter note. Risk assets bottomed on 20 January, and since then they have recovered almost half of the losses incurred earlier in the month. Nevertheless, global equities still fell by over 5 per cent in the month as a whole.
The latest to act is the Bank of Japan (BoJ), which introduced a new flavour of monetary easing on Friday. They have given it a snappy title: “Quantitative and qualitative monetary easing (QQE) with a negative interest rate”. Roughly translated, they are still throwing the monetary kitchen sink at the economy, and have hinted that they might even increase the scale of the stimulus later in the year.
Some analysts have described the latest surprise announcement as “a very big regime change”. Compared to what has come before, that is probably an overstatement. On the Richter scale of unconventional monetary policy changes, it is not as significant as the two great Kuroda bazookas in April 2013 and October 2014, both of which had profound market consequences.
But it does introduce a new “tiered” approach to the implementation of negative interest rates that might allow much greater cuts into negative territory than previously envisaged by the major central banks, notably the ECB (which seemed to consider, and then reject, a similar course of action in December). Read more