What's going on?

There were two major central bank meetings on Wednesday, both of which were big news for investors. Let�s break it down�

What does this mean?

If the Japanese and American economies were hospital patients, Japan would still be in intensive care while America would be hoping to get discharged pretty soon. Their ailments? Low economic growth and persistently low inflation. Since Japan�s condition is much more severe, it�s being treated with some pretty potent medicine (e.g. negative interest rates and directly buying its own government bonds). America is trying to figure out how to wean itself off the painkillers (e.g. by raising its target interest rate).


On Wednesday, the Bank of Japan (BoJ) tinkered with its medicine by, effectively, trying to make the environment less bad for its commercial banks (negative interest rates kind of act like a tax on banks, which hurts profits and causes banks to lend less money). By alleviating some of the pressure on profits, banks should be more able to lend money that can then be spent on economically productive things. In America, the Federal Reserve (�the Fed�) decided it wasn�t ready to cut back on the painkillers yet, but signaled it would likely raise its target interest rate once before the end of the year.

Why should I care?

For markets: Wednesday�s news was, on the whole, positive for banks.
Japanese bank stocks were up 7% as investors clearly liked the news that the BoJ is helping Japan’s banks. European banks were also broadly up as it�s thought that perhaps the environment in Japan would be mirrored, at least somewhat, in Europe. US banks didn�t perform as well, but if the Fed does indeed raise its target interest rate later this year, that should be good for American banks (because they can charge more for the loans they give).


For you personally: This stuff matters � economic growth is very important.
There�s a strong body of evidence that economic growth is tied to things like improved living standards and longer life expectancy. More immediately, it�s nice to have a job! Crucially, it�s important to recognize we�re all in this together: it�s tough for one country to grow a lot faster than another simply because the world is very globalized (Caterpillar, for example, makes and sells its equipment all over the world). So, yeah, Japanese economic growth matters to your paycheck! (tweet this)