Bank of Japan stuns markets

Bank of Japan stuns markets


The Bank of Japan unexpectedly cut a benchmark interest rate below zero on Friday, stunning investors with another bold move to revive the economy as volatile markets and slowing global growth threaten its efforts to beat deflation.Asian shares jumped, the yen tumbled and sovereign bonds rallied after the BOJ said it would charge for a portion of bank reserves parked with the institution, an aggressive policy pioneered by the European Central Bank (ECB).”The BOJ will cut the interest rate further into negative territory if judged as necessary,” the bank said in a statement announcing the decision.In adopting negative interest rates Japan is reaching for a new weapon in its long battle against deflation or widespread falling prices, which since the 1990s have discouraged consumers from buying big or frequently because prices tend to fall.Deflation is seen as the root of two decades of economic malaise.

BOJ Governor Haruhiko Kuroda had said as recently as last week that the bank was not thinking of adopting a negative interest rate policy for now, telling the Japanese parliament that further easing would likely take the form of an expansion of its massive asset-buying programme.But in a narrow 5-4 vote, the BOJ’s policy board decided to charge a 0.1 percent interest on selected current account deposits that financial institutions hold with it.The central bank said the move was aimed at forestalling the risk of global financial turbulence hurting business confidence and reviving the “deflationary mindset” it has been striving to banish with aggressive money printing.”Kuroda had been saying that he didn’t think something like this would help so it is a bit surprising and it’s clear the market has been surprised by it,” said Nicholas Smith, a strategist at CLSA based in Tokyo.


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