EUR GOVTS: Central banks doing their best but is it enough?

Bank of Japan (BOJ) Governor Kuroda has mimicked his counterpart at the European Central Bank (ECB) by saying that the BOJ will effectively do whatever it takes to hit their ambitious inflation target of 2 percent as the Japanese economy suffers from deflationary pressure due to volatile markets and slowing global growth. He further stated that the BOJ has ample room to expand their monetary easing, "I am convinced that there is no limit to measures for monetary easing". What is worrying for financial markets in general is that Japanese markets themselves appear to be unconvinced. Admittedly, the 10-yr JGB has traded a record low yield of 0.054bp but the Nikkei index has all but given back its post-BOJ rate cut gains from Friday after falling another 3.2% today.
Japan is symptomatic of the travails facing the global economy in general, as the majority of central banks look to stimulate their own economy in the face of external risks. The ECB has already indicated that they will be reviewing policy at their next meeting in March and market expectations are for a further easing of policy. Likewise, the Bank of England is also expected to be relatively dovish at its monetary policy committee meeting on Thursday and further delay its intention to raise rates and this is already being reflected in a flattening of the short sterling curve. But this is a global phenomenon as central banks globally face the prospect of increasing stimulus and interest rates falling into negative territory. A major catalyst would be the continued devaluation of the Chinese yuan which could impact the global economy and create imbalances. This is expected to further ease expectations of 3 or 4 rate hikes by the US Federal Reserve this year. Federal Fund rate futures are pricing about a 50% chance of just one rate rise this year for instance. An immediate problem for the US is that if Friday's non-farm payroll data is strong they will be left with a dilemma of whether to raise rates because of domestic economic strength or hold off due to the risks pervading the global economy.
Emerging market economies are also suffering, particularly those that are reliant on commodity exports, as the Chinese slow down impinges on demand and low oil and energy prices create deflationary pressures. Already we have seen some of the second tier oil producing nations such as Azerbaijan, Nigeria and Angola having to go to the World Bank for financial assistance to mitigate currency outflows and alleviate budget deficits. We hark back to the sensationalist claims of Royal Bank of Scotland who, in a research note last month, advised their clients to "Sell everything except high quality bonds". At the time it appeared to be alarmist but has proved to be a pretty decent strategy so far in 2016.