Bernanke is seen ready to cut rates yet again, as concerns mount that the U.S. is turning Japanese. That doesn’t bode well for the greenback.
Morning Call: December 15
As the Federal Reserve considers rate cuts Tuesday, U.S. interest rates are approaching those of Japan, the nation which for years boasted the most easy monetary policy among major economies. The shrinking rate gap could drive Japanese investors from the U.S., leading to a further weakening of the dollar.
Many economists expect the Fed to cut its policy rate by half a percentage point to 0.5% Tuesday, nearing the Bank of Japan’s 0.3%. The U.S. rate hasn’t been lower than Japan’s since 1993.
Higher rates in the U.S. have lured many Japanese investors, including its giant insurance companies and pension funds, into dollar-based assets such as U.S. Treasurys. Japan held $573 billion of U.S. Treasury securities in September, according to Treasury Department data, making it the world’s second largest investor after China.
Rate cuts in the U.S. could eventually push down returns on these assets and eliminate their appeal for Japanese investors.
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