![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
Both times, in 2016 and 2024, the Nikkei 225 had the opposite reaction of the yen.\u00a0 The Nikkei slumped in January and February 2016 when the BoJ initially set rates below zero.\u00a0 By contrast, in March 2024, when the BoJ raised rates, the Nikkei 225 extended its rally (Figure 2).\u00a0<\/p>\n\n\n\n
Figure 2: The Nikkei 225 fell when rates went negative and rallied after rate hike<\/h3>\n\n\n\n![\"Figure](\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\")
Source: Bloomberg Professional (BOJBPBAL and JPY)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
To be fair, the Nikkei didn\u2019t perform badly during the entire period of negative rates.\u00a0 It began a rally in late March 2020 that coincided with the global updraft in asset prices on the heels of massive quantitative easing (QE) by central banks.\u00a0 Notably, BoJ\u2019s QE was much larger relative to GDP and lasted much longer than its peers (Figure 3).\u00a0 The rapid expansion of the BoJ\u2019s balance sheet relative to that of the Fed probably helped to push the yen lower versus USD (Figure 4).\u00a0\u00a0<\/p>\n\n\n\n
Figure 3: The BoJ\u2019s QE was much bigger than the ECB\u2019s or the Fed\u2019s<\/h3>\n\n\n\nSource: Bloomberg Professional (BSPGCPUS, BSPGCPEU, BSPGCPJP, BSPGCPGB)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Figure 4: The relative expansion of the BoJ\u2019s balance sheet coincided with a weaker yen<\/h3>\n\n\n\nSource: Bloomberg Professional (BSPGCPUS, BSPGCPEU and JPYUSD)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The fact that the BoJ was the last central bank to raise rates (Figure 5) most likely also put downward pressure on the yen, which was probably beneficial to the Nikkei 225.\u00a0 The Nikkei 225 usually had a negative day-to-day corrleation with changes in the value of the yen (Figure 6).\u00a0\u00a0<\/p>\n\n\n\n
Figure 5: The BoJ is the last central bank to raise rates<\/h3>\n\n\n\nSource: Bloomberg Professional (FDTRMID, CBAROVER, UKBRBASE, EURR002W, BOJDPBAL, RBATCTR, NOBRDEP, SWRATEI, SZLTDEP, SZLTTR, NZOCR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Figure 6: The Nikkei 225 usually correlates negatively with JPYUSD<\/h3>\n\n\n\nSource: Bloomberg Professional (JY1, ES1 and NK1)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Overall, the BoJ\u2019s first step towards higher rates might have the paradoxical impact of further stimulating economic growth by repealing what amounted to a tax on the banking system.\u00a0 Indeed, even further hikes of up to 0.25% or 0.5% could encourage a more normal functioning of the banking sector.\u00a0 Eventually, higher rates will have the impact of slowing growth as they do elsewhere, but that would likely require rates much higher than the current 0-10 basis-point range. By comparison, rates in the US are ranging from 5.25% to 5.50%.<\/p>\n\n\n\n
The Eurozone, Sweden and Switzerland also experimented with below-zero deposit rates. Their experiences mirror that of Japan. In the case of the Eurozone, when policy rates were first set to negative, the euro (EUR) fell sharply versus USD, but that was part of a global downdraft of currencies versus USD that coincided with the collapse of oil prices from late 2014-16. In that case, EUR fell alongside the pound, kroner, Australian and Canadian dollars as well as most emerging market currencies. As the European Central Bank (ECB) cut its deposit rate even deeper into negative territory later in the decade, EUR stopped selling off and it actually rebounded versus other currencies (Figure 7). <\/p>\n\n\n\n
Figure 7: Negative rates didn\u2019t consistently weaken EUR<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI EUSP and EUORDEPO)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Sweden\u2019s experiment with negative rates seemed to slow the long-term depreciation of the krona (SEK).\u00a0 As Sweden moved from running trade surpluses of close to 12% of GDP to more modest levels closer to 2% of GDP, SEK had been in long-term decline versus most other currencies.\u00a0 What\u2019s curious in Sweden\u2019s case is that the pace of SEK depreciation was faster before and after the negaitve rate period than during it.\u00a0 Also, SEK initially strengthened when negative rates were first implemented and then weakened when the central bank, Riksbank, raised rates back to zero.\u00a0 Both of these moves are in line with the Japanese experience of negative deposit rates (Figure 8).<\/p>\n\n\n\n
Figure 8: SEK\u2019s deprecition slowed under the negative rate regime<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SKSP and SWRRATEI)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-1.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
To be fair, the Nikkei didn\u2019t perform badly during the entire period of negative rates.\u00a0 It began a rally in late March 2020 that coincided with the global updraft in asset prices on the heels of massive quantitative easing (QE) by central banks.\u00a0 Notably, BoJ\u2019s QE was much larger relative to GDP and lasted much longer than its peers (Figure 3).\u00a0 The rapid expansion of the BoJ\u2019s balance sheet relative to that of the Fed probably helped to push the yen lower versus USD (Figure 4).\u00a0\u00a0<\/p>\n\n\n\n
Figure 3: The BoJ\u2019s QE was much bigger than the ECB\u2019s or the Fed\u2019s<\/h3>\n\n\n\nSource: Bloomberg Professional (BSPGCPUS, BSPGCPEU, BSPGCPJP, BSPGCPGB)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Figure 4: The relative expansion of the BoJ\u2019s balance sheet coincided with a weaker yen<\/h3>\n\n\n\nSource: Bloomberg Professional (BSPGCPUS, BSPGCPEU and JPYUSD)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The fact that the BoJ was the last central bank to raise rates (Figure 5) most likely also put downward pressure on the yen, which was probably beneficial to the Nikkei 225.\u00a0 The Nikkei 225 usually had a negative day-to-day corrleation with changes in the value of the yen (Figure 6).\u00a0\u00a0<\/p>\n\n\n\n
Figure 5: The BoJ is the last central bank to raise rates<\/h3>\n\n\n\nSource: Bloomberg Professional (FDTRMID, CBAROVER, UKBRBASE, EURR002W, BOJDPBAL, RBATCTR, NOBRDEP, SWRATEI, SZLTDEP, SZLTTR, NZOCR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Figure 6: The Nikkei 225 usually correlates negatively with JPYUSD<\/h3>\n\n\n\nSource: Bloomberg Professional (JY1, ES1 and NK1)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Overall, the BoJ\u2019s first step towards higher rates might have the paradoxical impact of further stimulating economic growth by repealing what amounted to a tax on the banking system.\u00a0 Indeed, even further hikes of up to 0.25% or 0.5% could encourage a more normal functioning of the banking sector.\u00a0 Eventually, higher rates will have the impact of slowing growth as they do elsewhere, but that would likely require rates much higher than the current 0-10 basis-point range. By comparison, rates in the US are ranging from 5.25% to 5.50%.<\/p>\n\n\n\n
The Eurozone, Sweden and Switzerland also experimented with below-zero deposit rates. Their experiences mirror that of Japan. In the case of the Eurozone, when policy rates were first set to negative, the euro (EUR) fell sharply versus USD, but that was part of a global downdraft of currencies versus USD that coincided with the collapse of oil prices from late 2014-16. In that case, EUR fell alongside the pound, kroner, Australian and Canadian dollars as well as most emerging market currencies. As the European Central Bank (ECB) cut its deposit rate even deeper into negative territory later in the decade, EUR stopped selling off and it actually rebounded versus other currencies (Figure 7). <\/p>\n\n\n\n
Figure 7: Negative rates didn\u2019t consistently weaken EUR<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI EUSP and EUORDEPO)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Sweden\u2019s experiment with negative rates seemed to slow the long-term depreciation of the krona (SEK).\u00a0 As Sweden moved from running trade surpluses of close to 12% of GDP to more modest levels closer to 2% of GDP, SEK had been in long-term decline versus most other currencies.\u00a0 What\u2019s curious in Sweden\u2019s case is that the pace of SEK depreciation was faster before and after the negaitve rate period than during it.\u00a0 Also, SEK initially strengthened when negative rates were first implemented and then weakened when the central bank, Riksbank, raised rates back to zero.\u00a0 Both of these moves are in line with the Japanese experience of negative deposit rates (Figure 8).<\/p>\n\n\n\n
Figure 8: SEK\u2019s deprecition slowed under the negative rate regime<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SKSP and SWRRATEI)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-2.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
Figure 4: The relative expansion of the BoJ\u2019s balance sheet coincided with a weaker yen<\/h3>\n\n\n\nSource: Bloomberg Professional (BSPGCPUS, BSPGCPEU and JPYUSD)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The fact that the BoJ was the last central bank to raise rates (Figure 5) most likely also put downward pressure on the yen, which was probably beneficial to the Nikkei 225.\u00a0 The Nikkei 225 usually had a negative day-to-day corrleation with changes in the value of the yen (Figure 6).\u00a0\u00a0<\/p>\n\n\n\n
Figure 5: The BoJ is the last central bank to raise rates<\/h3>\n\n\n\nSource: Bloomberg Professional (FDTRMID, CBAROVER, UKBRBASE, EURR002W, BOJDPBAL, RBATCTR, NOBRDEP, SWRATEI, SZLTDEP, SZLTTR, NZOCR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Figure 6: The Nikkei 225 usually correlates negatively with JPYUSD<\/h3>\n\n\n\nSource: Bloomberg Professional (JY1, ES1 and NK1)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Overall, the BoJ\u2019s first step towards higher rates might have the paradoxical impact of further stimulating economic growth by repealing what amounted to a tax on the banking system.\u00a0 Indeed, even further hikes of up to 0.25% or 0.5% could encourage a more normal functioning of the banking sector.\u00a0 Eventually, higher rates will have the impact of slowing growth as they do elsewhere, but that would likely require rates much higher than the current 0-10 basis-point range. By comparison, rates in the US are ranging from 5.25% to 5.50%.<\/p>\n\n\n\n
The Eurozone, Sweden and Switzerland also experimented with below-zero deposit rates. Their experiences mirror that of Japan. In the case of the Eurozone, when policy rates were first set to negative, the euro (EUR) fell sharply versus USD, but that was part of a global downdraft of currencies versus USD that coincided with the collapse of oil prices from late 2014-16. In that case, EUR fell alongside the pound, kroner, Australian and Canadian dollars as well as most emerging market currencies. As the European Central Bank (ECB) cut its deposit rate even deeper into negative territory later in the decade, EUR stopped selling off and it actually rebounded versus other currencies (Figure 7). <\/p>\n\n\n\n
Figure 7: Negative rates didn\u2019t consistently weaken EUR<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI EUSP and EUORDEPO)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Sweden\u2019s experiment with negative rates seemed to slow the long-term depreciation of the krona (SEK).\u00a0 As Sweden moved from running trade surpluses of close to 12% of GDP to more modest levels closer to 2% of GDP, SEK had been in long-term decline versus most other currencies.\u00a0 What\u2019s curious in Sweden\u2019s case is that the pace of SEK depreciation was faster before and after the negaitve rate period than during it.\u00a0 Also, SEK initially strengthened when negative rates were first implemented and then weakened when the central bank, Riksbank, raised rates back to zero.\u00a0 Both of these moves are in line with the Japanese experience of negative deposit rates (Figure 8).<\/p>\n\n\n\n
Figure 8: SEK\u2019s deprecition slowed under the negative rate regime<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SKSP and SWRRATEI)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-3.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
The fact that the BoJ was the last central bank to raise rates (Figure 5) most likely also put downward pressure on the yen, which was probably beneficial to the Nikkei 225.\u00a0 The Nikkei 225 usually had a negative day-to-day corrleation with changes in the value of the yen (Figure 6).\u00a0\u00a0<\/p>\n\n\n\n
Figure 5: The BoJ is the last central bank to raise rates<\/h3>\n\n\n\nSource: Bloomberg Professional (FDTRMID, CBAROVER, UKBRBASE, EURR002W, BOJDPBAL, RBATCTR, NOBRDEP, SWRATEI, SZLTDEP, SZLTTR, NZOCR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Figure 6: The Nikkei 225 usually correlates negatively with JPYUSD<\/h3>\n\n\n\nSource: Bloomberg Professional (JY1, ES1 and NK1)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Overall, the BoJ\u2019s first step towards higher rates might have the paradoxical impact of further stimulating economic growth by repealing what amounted to a tax on the banking system.\u00a0 Indeed, even further hikes of up to 0.25% or 0.5% could encourage a more normal functioning of the banking sector.\u00a0 Eventually, higher rates will have the impact of slowing growth as they do elsewhere, but that would likely require rates much higher than the current 0-10 basis-point range. By comparison, rates in the US are ranging from 5.25% to 5.50%.<\/p>\n\n\n\n
The Eurozone, Sweden and Switzerland also experimented with below-zero deposit rates. Their experiences mirror that of Japan. In the case of the Eurozone, when policy rates were first set to negative, the euro (EUR) fell sharply versus USD, but that was part of a global downdraft of currencies versus USD that coincided with the collapse of oil prices from late 2014-16. In that case, EUR fell alongside the pound, kroner, Australian and Canadian dollars as well as most emerging market currencies. As the European Central Bank (ECB) cut its deposit rate even deeper into negative territory later in the decade, EUR stopped selling off and it actually rebounded versus other currencies (Figure 7). <\/p>\n\n\n\n
Figure 7: Negative rates didn\u2019t consistently weaken EUR<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI EUSP and EUORDEPO)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Sweden\u2019s experiment with negative rates seemed to slow the long-term depreciation of the krona (SEK).\u00a0 As Sweden moved from running trade surpluses of close to 12% of GDP to more modest levels closer to 2% of GDP, SEK had been in long-term decline versus most other currencies.\u00a0 What\u2019s curious in Sweden\u2019s case is that the pace of SEK depreciation was faster before and after the negaitve rate period than during it.\u00a0 Also, SEK initially strengthened when negative rates were first implemented and then weakened when the central bank, Riksbank, raised rates back to zero.\u00a0 Both of these moves are in line with the Japanese experience of negative deposit rates (Figure 8).<\/p>\n\n\n\n
Figure 8: SEK\u2019s deprecition slowed under the negative rate regime<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SKSP and SWRRATEI)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-4.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
Figure 6: The Nikkei 225 usually correlates negatively with JPYUSD<\/h3>\n\n\n\nSource: Bloomberg Professional (JY1, ES1 and NK1)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Overall, the BoJ\u2019s first step towards higher rates might have the paradoxical impact of further stimulating economic growth by repealing what amounted to a tax on the banking system.\u00a0 Indeed, even further hikes of up to 0.25% or 0.5% could encourage a more normal functioning of the banking sector.\u00a0 Eventually, higher rates will have the impact of slowing growth as they do elsewhere, but that would likely require rates much higher than the current 0-10 basis-point range. By comparison, rates in the US are ranging from 5.25% to 5.50%.<\/p>\n\n\n\n
The Eurozone, Sweden and Switzerland also experimented with below-zero deposit rates. Their experiences mirror that of Japan. In the case of the Eurozone, when policy rates were first set to negative, the euro (EUR) fell sharply versus USD, but that was part of a global downdraft of currencies versus USD that coincided with the collapse of oil prices from late 2014-16. In that case, EUR fell alongside the pound, kroner, Australian and Canadian dollars as well as most emerging market currencies. As the European Central Bank (ECB) cut its deposit rate even deeper into negative territory later in the decade, EUR stopped selling off and it actually rebounded versus other currencies (Figure 7). <\/p>\n\n\n\n
Figure 7: Negative rates didn\u2019t consistently weaken EUR<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI EUSP and EUORDEPO)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Sweden\u2019s experiment with negative rates seemed to slow the long-term depreciation of the krona (SEK).\u00a0 As Sweden moved from running trade surpluses of close to 12% of GDP to more modest levels closer to 2% of GDP, SEK had been in long-term decline versus most other currencies.\u00a0 What\u2019s curious in Sweden\u2019s case is that the pace of SEK depreciation was faster before and after the negaitve rate period than during it.\u00a0 Also, SEK initially strengthened when negative rates were first implemented and then weakened when the central bank, Riksbank, raised rates back to zero.\u00a0 Both of these moves are in line with the Japanese experience of negative deposit rates (Figure 8).<\/p>\n\n\n\n
Figure 8: SEK\u2019s deprecition slowed under the negative rate regime<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SKSP and SWRRATEI)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-5.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
Overall, the BoJ\u2019s first step towards higher rates might have the paradoxical impact of further stimulating economic growth by repealing what amounted to a tax on the banking system.\u00a0 Indeed, even further hikes of up to 0.25% or 0.5% could encourage a more normal functioning of the banking sector.\u00a0 Eventually, higher rates will have the impact of slowing growth as they do elsewhere, but that would likely require rates much higher than the current 0-10 basis-point range. By comparison, rates in the US are ranging from 5.25% to 5.50%.<\/p>\n\n\n\n
The Eurozone, Sweden and Switzerland also experimented with below-zero deposit rates. Their experiences mirror that of Japan. In the case of the Eurozone, when policy rates were first set to negative, the euro (EUR) fell sharply versus USD, but that was part of a global downdraft of currencies versus USD that coincided with the collapse of oil prices from late 2014-16. In that case, EUR fell alongside the pound, kroner, Australian and Canadian dollars as well as most emerging market currencies. As the European Central Bank (ECB) cut its deposit rate even deeper into negative territory later in the decade, EUR stopped selling off and it actually rebounded versus other currencies (Figure 7). <\/p>\n\n\n\n
Figure 7: Negative rates didn\u2019t consistently weaken EUR<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI EUSP and EUORDEPO)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Sweden\u2019s experiment with negative rates seemed to slow the long-term depreciation of the krona (SEK).\u00a0 As Sweden moved from running trade surpluses of close to 12% of GDP to more modest levels closer to 2% of GDP, SEK had been in long-term decline versus most other currencies.\u00a0 What\u2019s curious in Sweden\u2019s case is that the pace of SEK depreciation was faster before and after the negaitve rate period than during it.\u00a0 Also, SEK initially strengthened when negative rates were first implemented and then weakened when the central bank, Riksbank, raised rates back to zero.\u00a0 Both of these moves are in line with the Japanese experience of negative deposit rates (Figure 8).<\/p>\n\n\n\n
Figure 8: SEK\u2019s deprecition slowed under the negative rate regime<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SKSP and SWRRATEI)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-6.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
Sweden\u2019s experiment with negative rates seemed to slow the long-term depreciation of the krona (SEK).\u00a0 As Sweden moved from running trade surpluses of close to 12% of GDP to more modest levels closer to 2% of GDP, SEK had been in long-term decline versus most other currencies.\u00a0 What\u2019s curious in Sweden\u2019s case is that the pace of SEK depreciation was faster before and after the negaitve rate period than during it.\u00a0 Also, SEK initially strengthened when negative rates were first implemented and then weakened when the central bank, Riksbank, raised rates back to zero.\u00a0 Both of these moves are in line with the Japanese experience of negative deposit rates (Figure 8).<\/p>\n\n\n\n
Figure 8: SEK\u2019s deprecition slowed under the negative rate regime<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SKSP and SWRRATEI)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-7.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
Switzerland provides the most extreme example of \u00a0negative rates being an unintentional policy tightening. The Swiss franc (CHF) soared when the Swiss National Bank (SNB) first went to negative rates and continued to rise.\u00a0 At the moment the SNB brought rates back to positive levels, CHF sold off and is currently trading near the same level it was at when negative rates ended (Figure 9).\u00a0\u00a0<\/p>\n\n\n\n
Figure 9: CHF soared when the SNB put rates at negative levels<\/h3>\n\n\n\nSource: Bloomberg Professional (TWI SFSP and SZLTTR)<\/figcaption><\/figure>\n\n\n\nPast performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Figure](\"https:\/\/ibkrcampusdev.wpengine.com\/wp-content\/uploads\/sites\/3\/2024\/04\/japan-joins-the-rate-hike-club-a-8.jpg\")
Past performance is not indicative of future results<\/p>\n\n\n\n
The experience of negative deposit rates in Europe largely confirm the Japanese experience.\u00a0 Rather than weakening the negative-rate currencies, below zero deposit rates appear to have strengthened them or, in the case of Sweden, perhaps slowed a long-term decline.\u00a0 This suggests that negative rates are seen as restrictive and not expanding money supply growth, and ending them is considered expansionary. Finally, the reaction of the Nikkei 225, a separate asset class, also appears to confirm the reaction of the currency market.\u00a0 \u00a0<\/p>\n\n\n\n
—<\/p>\n\n\n\n