The introduction of negative interest rates was voted for by a narrow majority of five of the nine board members at the Bank of Japan’s (BoJ) monetary policy meeting today (January 29).
In a statement, the BoJ said it will “cut the interest rate further into negative territory if judged as necessary”.
The BoJ pointed to the moderate recovery of Japan’s economy and said the underlying trend in inflation “has been rising steadily”.
But it voiced concerns about the volatility of global financial markets against a backdrop of falling crude oil prices and uncertainty over China’s future.
“For these reasons, there is an increasing risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively affected,” the bank said.
Policymakers at Japan’s central bank decided to leave the annual pace of expansion of the monetary base unchanged at 80 trillion yen.
Marcel Thieliant, senior Japan economist at Capital Economics, said: “Governor [Haruhiko] Kuroda has gained notoriety by changing course when it is least expected, and today’s move will only serve to cement this reputation. Just two weeks ago, Mr Kuroda said that the Bank does not intend to cut the interest rate on excess reserves.”
The BoJ confirmed the negative interest rate of -0.1 per cent will apply to current accounts held by financial institutions at the bank.
“What’s more, no interest will be applied to required reserves and the outstanding volume of the Bank’s lending programmes. Finally, the Bank will gradually exempt reserve balances from negative rates as their outstanding volume is set to rise further as asset purchases continue,” added Mr Thieliant.
The Nikkei 225 index has responded positively to the news, up 2.8 per cent to 17,518.30.
