Japanese surprise: negative interest rate
Unexpectedly for all the Bank of Japan introduced a negative interest rate. The reference interest rate of -0.1% is designed to reduce inflation and to support the Central Bank. In the eurozone, the negative interest rates are not uncommon, but in the history of Japan, the first time such an event occurs.
This decision is “cooked” in the plans of the Japanese economy derive from stagnation for almost 10 years. The decision to adopt a negative interest rate was adopted by a small majority in the first in this year, the Bank of Japan meeting on Friday.
“The Bank of Japan cut rates even lower, if necessary,” – said representatives of the Bank of Japan, adding that the decline will continue until until you reach the inflation target of 2%.
Some analysts have questioned the effectiveness of rate cuts.
Why Japan has taken such a decision?
- Currently, Japan is faced with a very low inflation, which means that people and companies tend to “hold on” for their money in the hope that they will get more in the future. Money not spent and not invested, and are stored in the banks.
- The percentage for the content of the money in the bank, may call the commercial banks to issue it in the form of loans. This would enhance and domestic spending and business investment.
- The main purpose of the introduction of negative interest rates – inflation increase, which encourages companies and consumers to spend rather than save.
At a press conference Governor of the Bank of Japan Haruhiko Kuroda said that the weakening global economic growth has become a major factor in this decision: “The Japanese economy continues to recover at a moderate pace, and the base price trend steadily improved … further drop in oil prices, uncertainty in emerging economies including China, and the instability of the global market could hurt business confidence and curb the destruction of a deflationary mindset of people. “
Earlier on Friday, new economic data once again highlighted concerns about economic growth. The December core inflation rate amounted to 0.1%, far below the target of the central bank.
Asian stocks jumped and the yen fell on market reaction. Shares of Japanese banks tumbled on the news.
The decision to introduce negative interest rates has been called «Kuroda bazooka» in honor of the Governor of the Bank of Japan. Haruhiko Kuroda, known for its ability to make decisions, investors who plunged into shock. Only a few weeks ago Kuroda told a parliamentary budget committee that stimulate economic development will no longer be.
Thus, today’s announcement caused the stock market to jump, while the yen fell sharply against other major currencies. Option reduce the loan costs below zero, I have been in the plans of the Central Bank of Japan since the early 2000s. Japan was the first country to propose such a solution. However, the first country to introduce it began to Denmark, Sweden and Switzerland, with the support of the European Central Bank, which had to do everything in his power to keep the EU’s economy afloat during the economic crisis.
However, there are doubts about the feasibility of conducting such a policy.
“Negative interest rates are one of the latest tools in the” tool box “of the Bank of Japan,” – said Martin Schulz from the Institute of Fujitsu. “But its impact is unlikely to be significant.”
Schulz warned that the euro zone, negative interest rates are used to counter the financial crisis, while Japan is among a long and slow growth.
“In Japan, not to expand lending, not because banks are not willing to provide funds, and because the company had not seen the investment perspective, to borrow. Even with the negative interest rates, this situation does not change. “
“Companies do not require money – they require the investment opportunities. And this can only be achieved by structural reforms, rather than monetary policy “, – he said.
The decision was in addition to an active policy of buying government bonds and shares, which stimulated growth in the past few years.
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