Near-Zero Japanese Interest Rates Will Prop Up Global Equities
Underlying the recent decline in global stock markets has been the change in monetary policy at the BOJ, says The Times (London). Japan is ending its "quantitative easing" policy, which seemingly forehadows higher interest rates. But according to The Times , it's likely that "...Japan’s short-term interest rates will remain near zero for another year or so and, even more importantly, that they will not rise above 1 per cent for the rest of this decade." Their logic is (a) interest rates won't be budged upward for some time, according to Japanese policymakers; (b) slower growth in the US and Europe will give them pause about increasing rates too soon, and (c) Japan's GDP growth rate and inflation levels imply a natural interest rate of 1% a year or below until the end of 2007. After that, higher tax rates loom and the Japanese government will want to keep rates low for fear of causing recession. All this means sustained low rates, which will underpin high equity prices worldwide.