Bank Of Japan Negative Interest Rates: Japan Negative Rates
Published: January 29, 2016
Bank Of Japan Negative Interest Rates: Japan Negative Rates, As Japan’s economic doldrums have lingered over the years, its leaders have tried a number of tricks, from ramping up government spending to flooding the financial system with cash.
With the global economy looking increasingly fraught, Japan is now taking a more dramatic step, by cutting interest rates below zero on Friday.
The policy – which means banks are essentially paying for the privilege of parking their money – represents a last resort for a country that has struggled through a quarter century of weak growth. In theory, negative rates will push banks to lend more to companies, which would then spend and hire.
Japan is following other major central banks in going negative on interest rates, a sign of the ongoing global trouble from plummeting low oil prices, stalling international trade and slowing growth in China. The move comes as Japan’s prime minister, Shinzo Abe, is seeking new ways to break the country’s cycle of decline.
Mr. Abe has championed a system of temporary tax cuts and heavy government spending to spur growth and stoke inflation. But the world’s third-largest economy has cycled in and out of recession under his administration, sowing doubts about his policies.
The bank’s policy makers, who voted 5-4 to approve the measure, took great pains to say the rate cut was based on global conditions, not the Japanese economy itself. The move surprised financial markets, which moved higher in Asia trading.
“Japan’s economy has continued to recover moderately,” the bank said in a news release. “Recently, however, global financial markets have been volatile against the backdrop of the further decline in crude oil prices.”
Global difficulties might hurt the business confidence of Japanese companies and encourage deflation, the bank added, and the measures announced on Friday would “pre-empt the manifestation of this risk.”
Its decision to charge commercial banks for holding their money instead of paying them interest on it signaled a new willingness to pull out all the stops in a bid to bolster economic growth.
In a statement explaining the move, the Bank of Japan even said that it might “cut the interest rate further into negative territory if judged as necessary.” Penalizing commercial banks for keeping money on deposit at the central bank puts pressure on them to lend instead. That makes it easier for companies to invest in new projects and easier for consumers to borrow and spend.
The Japanese central bank was also uncommonly blunt in mentioning the economy of another country, China, as one of the risks that could damage Japan’s economy.
“We saw risks from China’s and other emerging countries’ economies as well as the oil price decline,” the central bank’s governor, Haruhiko Kuroda, said in a news conference Friday evening. “Since the beginning of the year, the financial market has been reflecting such an unstable situation. What is most important is that there is a growing possibility of its making negative impacts on Japanese enterprises and people’s mind-set to get away from deflation. For those concerns, we will respond without any hesitation.”
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