The Bank of Japan blindsided global financial markets Friday by adopting negative interest rates for the first time ever, buckling under pressure to revive growth in the world’s third-largest economy.
In a move that was signaled by the Nikkei business daily minutes ahead of the decision, the BOJ said it will apply a rate of negative 0.1 percent to excess reserves that financial institutional place at the bank, effective February 16.
Charging banks for the privilege of parking some of their excess funds was an unexpected move, although not without precedent. Central banks in Europe, notably the European Central Bank, have slashed interest rates below zero before to push down borrowing costs and prod banks to lend more.
The BOJ left its program to buy government bonds and exchange traded funds (ETFs) unchanged.
The central bank noted that the Japanese economy has recovered modestly with underlying inflation picking up, along with spending by companies and households.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Craig Erlam
Latest posts by Craig Erlam (see all)
- USD/CAD – Heading For a Correction? - 02/26/2021
- Market Insights Podcast (Episode 169) - 02/26/2021
- Week Ahead – Rising yields spook markets - 02/26/2021