The European Central Bank and the Swiss National Bank have adopted negative interest rates to some degree.
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The BoJ added that it would cut interest rates further into negative territory if this was deemed necessary.
The Bank of Japan stunned markets Friday, when in a 5-4 vote, the Bank of Japan’s board imposed a 0.1% fee on deposits left with the Bank of Japan, effectively a negative interest rate.
While a first for Japan, negative interest rates are not unprecedented. “What’s important is to show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it”, bank governor Haruhiko Kuroda told reporters, according to media reports.
Tokyo stocks rose in early trade Monday, as investors reacted positively to last week’s interest rate cut by the Bank of Japan and Sony soared almost 10 percent after posting strong quarterly earnings. This theoretically boosts economic activity and eventually pushes up prices. The move aims to make sure that banks lend their money to customers rather than hang on to it, and the customers will then spend the money therefore boosting the economy. “This entire exercise is not going to work”.
The ECB held back from injecting more electronic cash into markets at its meeting this month but it too fired up share prices with a promise to consider more action in March. Volatile markets and slowing global growth have threatened the central bank’s efforts to overcome deflation.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1 per cent, after losing 8 per cent in January. The euro weakened to $1.0911 from $1.0932, but against the Japanese currency it rose to 131.87 yen from 129.92 yen.
However, a sticking point is that the BOJ’s new policy is not very compatible with quantitative easing, as can be seen from the fact the BOJ kept its monetary base target unchanged, Kureda said.
A wait-and-see mood is expected to spread in the currency market this week, with U.S.jobs data for January to be released on Friday.
“Investors such as pension funds should slowly shift their assets from bonds to equities”.
The yield on benchmark 10-year Japanese government bonds plunged to a record low of 0.09 per cent, and the yen fell 1.87 per cent to 121.03, on track for its biggest daily decline against the USA dollar in over a year.
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The commodity-sensitive Canadian dollar also continued to trend higher on the strength in oil, up 0.22 of a USA cent at 71.40 cents United States after having rebounded from below 69 cents US early last week.
