The Bank of Japan earlier today announced that it left its overnight rate unchanged at 0.50%, which was in line with most market analyst predictions. It will also perpetuate the robust carry trade which has kept the yen weak. The market is not expecting a rate hike until later this year and not until inflation starts to rise and the risks for deflation recede.
Meanwhile, the trend toward higher global rates was underlined again earlier today when South Korea's central bank raised its benchmark rate by 25 bp to 4.75%. The market had been split regarding the this rate hike which will tighten the money supply and credit growth. Higher housing prices and a stronger than expected economy and stock market tracked by the exchange-traded fund (EWY) gave monetary officials the leeway to raise rates without fear of killing economic momentum and growth. Markets have responded favorably with EWY up 2.5% in midday trading while the iShares Japan ETF (EWJ) is flat.
My view is that Japan should have followed Korea and raised rates and that higher rates would be good for its economy and stockmarket. It would demonstrate confidence in the Japanese economy which is sorely lacking by officials, executives and consumers.
Overseas stocks markets today were mostly higher, except for the Nikkei index which closed down slightly. China's Shanghai Composite closed +0.71% and Hong Kong closed +0.89%. The European DJ Stoxx 50 index this morning is just barely higher.
Posted by Carl Delfeld of the Chartwell ETF Advisor
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