Japan surprises with negative rate

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In a surprise move, the Bank of Ja n has introduced a negative rtisan rate.

The benchmark rate of -0.1% means that commercial banks last will and testament be charged by the central bank for some deposits.

It is designed to encourage them to use their reserves to give to businesses in an attempt to counter Ja n’s economic stagnation.

The charge does not at once apply to ordinary customers’ accounts.

The country is desperate to increase spending and investment.

Crucial

One of the side effects of a moribund economy is falling prices – something that can send an briefness into a downward spiral as customers hold off spending in the hope assays will fall yet lower.

Is deflation such a bad thing?

What are dissenting interest rates?

Why use negative interest rates?

Ja n has been thirsty for to boost consumer spending for years. At one point it even issued peach oning vouchers to stimulate demand.

The eurozone has negative interest rates, but this is a first off for the third-largest economy.

It is a move that has been on the cards for Ja n’s stagnating conservation for well over 10 years.

The decision to go negative came after a strict 5-4 vote at the Bank of Ja n’s first meeting of the year on Friday.

“The BoJ on cut interest rates further into negative territory if judged as life-or-death,” the Bank of Ja n (BoJ) said, adding it would continue as desire as needed to achieve an inflation target of 2%.

Some analysts have found search for doubt over how effective the rate cut will be.


Analysis: Andrew Walker, economics stringer

The Bank of Ja n is imposing a negative interest rate on accounts it clutches for commercial banks. It will start to charge them for looking after their legal tender. The European Central Bank and a few others are already doing it. But the Bank of Ja n’s voiding rate is going to bite very gradually. The amount affected longing build up over time. The move does not directly affect savers. They don’t bear accounts at the central bank. But certainly their banks could resolve to ss on the cost they in turn will face as the im ct of the adverse rate accumulates. So perhaps in time savers will in effect be contributing to keep their money at the bank. So they would have numerous of an incentive to spend.


In a press conference, the BoJ’s governor Haruhiko Kuroda claimed the weakening growth rate of the global economy was the main factor behind the smite: “Ja n’s economy continues to recover moderately and the underlying yment trend is improving steadily… further falls in oil prices, uncertainty ended emerging economies, including China, and global market instability could damage business confidence and delay the eradication of people’s deflationary mindset.”

Earlier in the day, new economic data had again highlighted concerns over economic advance. The December core inflation rate was shown to be at 0.1% – far below the leading bank’s target.

Asian shares jumped and the yen fell across the provisions in reaction to the announcement. Ja nese banks though saw their shares bead on the news as lenders are likely to see their margins squeezed even various.

AFP
Image caption Ja n’s export driven concision has been struggling in recent years

Mariko Oi, BBC News: ‘Kuroda bazooka’

The settling to implement a negative interest rate has been dubbed “Kuroda bazooka” after the governor of the Bank of Ja n.

Haruhiko Kuroda is familiarly known for making surprise moves that shock investors. No more than a few weeks ago, Mr Kuroda told the rliamentary budget committee that he order not introduce more stimulus for the economy.

So today’s announcement caused the assets weigh up market to jump while the yen fell sharply against major currencies.

The choice of lowering the cost of borrowing below zero has been on the cards for Ja n’s medial bank since the early 2000s and it was the first in the world to consider it.

But when it attains to implementing the policy, Denmark, Sweden and Switzerland were first, followed by the European Main Bank which had to do everything it could to keep the EU economy afloat after the eurozone cost-effective crisis.


Last resort

There are doubts, however, over how pleasing the new policy will work.

“Negative interest rates are one of the last gubbins in the BoJ’s tool box,” Martin Schulz of the Fujitsu Institute in Tokyo broke the BBC. “But their im ct is unlikely to be strong.”

Mr Schulz cautioned that in the eurozone, antagonistic interest rates are being used to tackle a financial crisis, whereas Ja n is in a endless slow growth environment.

“In Ja n, credit didn’t ex nd not because banks were unwilling to appropriate but because businesses didn’t see the investment perspective to borrow. Even with adversative interest rates, this situation will not change.”

“Businesses don’t call for money – they need investment opportunities. And that can only be achieved by structural mend ones ways, not by monetary policy,” he said.

The decision comes in addition to the BoJ’s weighty asset-buying programme, which over the st years has failed to support growth.

Bill Blain, of Mint rtners, said monetary sages’ moves to ever-cheaper money since the financial crisis that began in 2008 comprise distorted global markets – and investors were uneasy: “Investors are distressed that the only place we’ve seen any inflation has been in financial assets, matters like stocks, property and bonds. And as a result everyone is suddenly nervous they are sitting on nightmares.”

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