BOJ’s negative interest rate ‘will help Thailand in long run’
Play
THE BANK of Japan’s decision to adopt a negative interest rate shows that it is using all measures to revive economic growth, which, if successful, will benefit Thai exports, analysts say.
The BOJ yesterday unexpectedly cut its benchmark interest rate to minus-0.1 per cent in an attempt to encourage banks to lend more money and for people to start spending more in order to avoid economic stagnation.
A negative rate means banks will be charged if they park their funds at the BOJ. Pimonwan Mahujchariyawong, deputy managing director at Kasikorn Research Centre, said this policy would be beneficial for Thai exporters in the long term, especially if Japan’s economy returns to healthy growth.
Currently, Thailand’s exports to Japan are worth Bt63.9 billion annually, or 9.4 per cent of total exports. However, Pimonwan said Thai exporters should also hedge their foreign-exchange positions to manage a short-term impact on currency fluctuation, as the Japanese yen will depreciate further because of the government’s negative-interest-rate policy.
However, the BOJ move is not likely to trigger capital outflows from emerging markets such as Thailand because its consequence will be different from the US Federal Reserve’s rate hike last month, when some capital moved out of Asia.
Jitipol Puksamatanan, global economist and currency strategist at TMB Analytics, said the Thai economy should benefit if the BOJ policy does indeed boost the Japanese economy. TMB Analytics forecasts 1-per-cent growth this year for Japan’s gross domestic product.
He said auto parts and machinery were among the Thai export sectors that would gain if the Japanese economy returned to a healthy growth, and while the yen will weaken because of the rate cut, it should not affect the Thai baht.
Paul Mackel, head of global emerging-markets foreign-exchange strategy at HSBC, said research indicated that the BOJ’s decision would establish a multi-tier deposit-rate system in which the central bank would begin charging 0.1 per cent on any marginal increase in financial institutions’ current-account balances.
While the BOJ will continue with its existing asset purchases, its adoption of negative interest signals a big change in the focus of the central bank’s methods of easing away from a quantitative balance-sheet expansion.
The latest action gives cover to the BOJ, which is doing everything it can to combat disinflationary pressures.
“However, with interest rates already at record lows, we do not expect these measures to have a significant impact on the real economy, or inflation.
“As such, we believe questions will soon be asked about how long the Japanese yen’s weakness can persist,” Mackel said.
