Derek Halpenny, European Head of GMR at MUFG, suggests that there is another reason why Yellen will thread carefully on the subject of negative interest rates – the evidence on its impact has become a little less clear since the BOJ joined the club at the end of January. Key Quotes “Market yields have come sharply lower, but global financial market conditions have over-whelmed the policy move with the Topix Index down 13.6% from the closing high the day following the BOJ move while the BOJ nominal JPY index has surged 4.0%. For Japan, the BOJ move would appear an attempt to thwart the yen from becoming a safe-haven currency again. The flow data does show that while yields in Japan were low, there was evidence of a notable increase in investor demand for short-term securities. Foreign investor purchases of short-term securities totalled nearly JPY 10trn with over half of those purchases coming in the final quarter of the year. That strong demand continued in January with a further JPY 1.3trn worth of purchases. There was also a notable upturn in JGB buying in the second half of last year with foreign investors buying JPY 6.8trn. All of this buying of Japanese short and long-term debt securities came as market turmoil increased in response to the CNY devaluation in August last year. The Japanese authorities obviously felt compelled to act to make these securities less attractive. If the market turmoil escalates further, yield of course matters less and these flows may well persist. A Further rapid gain for the yen is perhaps more relevant than any specific level for intervention to become the next considered step.” For more information, read our latest forex news.