BOJ makes shock move for negative interest rates
Print Edition
JAPAN’S central bank shocked markets yesterday with plans to effectively charge lenders to park their cash with it, ramping up a long-running battle to kick-start the world’s No. 3 economy.
The unprecedented decision to adopt a below-zero interest rate policy is the Bank of Japan’s latest weapon as it looks to spur bank lending and drive up inflation. In response, the Nikkei stock index soared almost 3 percent as the yen plunged.
BOJ chief Haruhiko Kuroda cited recent financial market turmoil and a China slowdown for ushering in a minus 0.1 percent rate on existing reserves, and said the bank may go even further into negative territory. Rates currently are near zero.
“The Japanese economy is not isolated from the global economy,” he said, after the bank’s first meeting of 2016.
“There has been big volatility in financial markets ... Because of the uncertain outlook for emerging and commodity-exporting economies, particularly China, we see rising risks for corporate confidence” and consumers’ expectations for inflation.”
“That is why we decided to introduce negative interest rates.”
Under the plan, commercial lenders would now have pay to park their existing reserves at the BOJ, giving them an incentive to boost lending, which policy-makers hope would stoke economic growth.
But some analysts saw it as a desperate move after three years of Prime Minister Shinzo Abe’s big spending, easing money policy, dubbed “Abenomics,” having limited impact on the moribund economy.
And in a stark acknowledgement of the huge job ahead, the BOJ cut its inflation forecasts and pushed back the timeline for hitting their inflation goal.
“It was a surprise to most market players who thought negative interest rates would be a last resort,” said Koichi Fujishiro, senior economist at Dai-ichi Life Research Institute.
A similar below-zero policy was adopted by the European Central Bank in 2014, the first time by a major central bank.
The rate change passed by a narrow vote among BOJ policy members, who kept their 80 trillion yen (US$673 billion) asset-buying plan unchanged.
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