The Japanese Yen took another dip this week as the speculation continued to mount about a possible stimulus package from the country’s government. The Japanese are facing serious problems with parts of their economy, but there are hopes the United States Federal Reserve and the Bank of Japan can come to some understanding.
One idea floated by the former chairman of the Federal Reserve, Ben Bernanke, revolved around the notion of the United States providing the BOJ with perpetual bonds. The idea behind these bonds is to issue perpetual bonds directly to the Bank of Japan, with the intent of boosting the country’s economy. But it is clear the Japanese government will have to come up with a deeper stimulus package if they want their nation’s economy to succeed in the long-run.
Meanwhile, the United Kingdom Pound saw gains against the Euro and Dollar as the Bank of England decided to cut interest rates. The Bank of England was not expected to announce any rate cuts this year, but the world’s economy also did not expect the UK’s citizens to vote out of the European Union. The economic fallout from the UK’s decision has been enormous, with many businesses and financial institutions suffering, and the Bank of England is determined to correct the damage as soon as possible.
Many analysts are fascinated by the next moves planned by the Bank of England. The interest rate cuts are expected to push the IR in the United Kingdom from 0.5 to 0.25 percent, which is a relatively drastic decision. 0.25 percent would mark the lowest interest rate levels in United Kingdom history. But the Bank of England is not stopping there. It is believed they are coming up with a new monetary policy in the coming weeks to initiate quantitative easing.
One of the things the BoE hopes to achieve is stability. Too many investors and companies are fearing the worst when it comes to the UK’s “Brexit” vote. The BoE hopes that quantitative easing will lead to a resurgence of the UK Pound and the country’s economy in general. While the specifics of the United Kingdom’s exit from the EU are still unknown, many investors fear the UK will lose their access to the European single market.
The industries and companies most hit by the Brexit news are related to the financial sector. These companies employ individuals from the UK, along with other parts of the European Union. One of the reasons they keep their main offices in London is because the city is considered one of the financial capitals of the world. But if the UK loses its access to the single market, and applies other restrictions regarding the free movement of EU and UK citizens, these financial companies may no longer have many incentives to remain in London.
It is the uncertainty that is killing the UK economy at the moment. And the Bank of England hopes to erase some of those fears in the coming weeks and months.