Fundamental Analysis Friday 27 February 2023

Author: Steve Tee


As the entire world is raising interest rates in tandem with US Federal Reserve, the only country that is defying gravity now is Japan. Sitting at -0.1% interest rate and has not changed since January 2016, this may seem like a gutsy stance can could have detrimental effect on its real economy. Negative interest rate means one will need to pay extra on top of their principal amount invested. This definitely will drive investors away to countries with higher yielding interest rates such as US, Europe and Australia. Hence, it is pretty straight forward to assume bearishness of Japanese Yen against other currencies.

By keep rates so low, the government is sort of encouraging spending. Credit will be cheap and local businesses will be able to borrow easier, stimulating the economy. By not tightening monetary policy, inflation usually will be kept at bay. From Global Rates, it shows that Japan’s inflation rate is 4.38% as of January 2023, which is significantly lower than the rest e.g. US at 6.41%. A very self-serving interest of Japanese government at turmoil times but having negative interest rates is kicking the can down the road as inflation will circulate back into the economy.

Amid the global shortage of semiconductor, Japan’s Rapidus is seizing the moment to grab market share and expand their business in the microchip sector. A report by Nikkei Asia states that Rapidus, a government-backed venture is planning to build their plant in Chitose, Hokkaido. This plant is touted to be the most advance in the nation. With lower interest rates, the environment in Japan is definitely conducive for businesses to kick start.