Surprise as Bank of Japan Introduces Negative Interest Rate

Bank of japan

For the first time in its history, the Bank of Japan on Friday introduced a negative interest rate policy, a move aimed at boosting a stumbling economic recovery and warding off deflation.

Tokyo’s central bank hopes that by imposing a 0.1% fee on selected current account deposits — effectively a negative interest rate — commercial banks will be encouraged to make more loans and so stimulate economic growth. The benchmark rate of -0.1% also means that commercial banks will be charged by the central bank for some deposits.

It hopes this will be a disincentive to banks to save and prompt them to lend in another attempt to counter the continuing economic slump in the world’s third-largest economy. Japan’s economy is forecast to grow just 1.1% in 2015 and 1.7% in 2016.

The Bank of Japan also said in a statement that it would cut rates further into negative territory if it needed to push borrowing costs even lower. It said the policy would continue as long as needed to achieve an inflation target of 2%.

 

Bank of Japan is not alone in the negative interest rates club, other central banks with negative interest rates are shown below

banks with negative interest rates

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