BOJ to cut negative rate in September: JPMorgan

Bloomberg

The Bank of Japan (BOJ) will lower its short-term interest rate to -0.3 percent from -0.1 percent in September to head off risks posed by an expected Federal Reserve rate cut, JPMorgan Chase & Co. said in a research note.
Fed cuts are now expected in September and December after escalating US-China trade tensions have raised the risk that global growth will deteriorate, said Hiroshi Ugai, chief Japan economist at JPMorgan.
That will pressure the BOJ to act to prevent a narrowing of the rate spread with the Fed at a time when the yen will be strengthening and economic growth and inflationary pressures deteriorating, Ugai says. JPMorgan will revise down its economic growth outlook next week after Japan releases revised gross domestic product figures for the first quarter, he said.
The BOJ would risk a sharp strengthening of the yen if it didn’t respond to the Fed’s move, Ugai said.
Even before the recent US-China flareup, a growing number of economists had begun to predict the BOJ would undertake additional monetary easing in the face of sagging growth and inflation. But relatively few thought that easing would take the form of a cut to the negative rate, which has been broadly unpopular in Japan.
The BOJ is likely to offer some compensation to banks to alleviate the squeeze on their profits from the lower rate, Ugai said.