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Negative Japanese Interest Rates Revive JYVIX Index

The JYVIX Index rose to 11.77 at the close on Thursday, ahead of the Bank of Japan’s move to press the Japanese short rate of interest into negative territory early Friday. It was the first time the Japanese central bank adopted a negative interest rate, and this unusual decision propped up global equities as well as the volatility index. The JYVIX Index measures the volatility of the Yen/Dollar rate of exchange. The action was the high note in a week where other VIX indicators of volatility stabilized along with the prices of oil, U.S. and Chinese equities.

Figure 1. Crude oil, U.S. and Chinese equities, and U.S. dollar edge higher


Federal Reserve Back On Hold?

Adding to the calm is the belief by many economists that the U.S. Federal Open Market Committee may not make additional increases in the federal funds target rate until September. The analysts note the U.S. economic indicators are painting a less rosy picture of current conditions: U.S. initial jobless claims have increased, and a spending by consumers and businesses has moderated. In addition, the 10-Year Treasury note yield has backed down to 2%.

Figure 2. Path of VIX and VIX-like volatility indexes


Figure 3. Update of weekly indicators, rates


V- Formation in VIX Index Forward Prices.

The V-shaped term structure of VIX forward prices – the TYVIX Index excepted -- suggests that investors expect volatility to rise in the near future, then to revert to lower values.

Figure 4. TYVIX Index an exception to V-shaped term structure