The Bank of Japan (BOJ) shocked markets yesterday after it unveiled plans to effectively charge lenders to park their cash with it, ramping up its long-running battle to kickstart the world’s No. 3 economy.
The unprecedented decision to adopt a policy of below-zero interest rates is the BOJ’s latest weapon as it looks to spur lending. The move sent the Nikkei stock index up almost 3 percent, while the yen plunged.
However, analysts said that the announcement could be construed by some as a desperate move after three years of Japanese Prime Minister Shinzo Abe’s big-
Photo: AFP
spending, easing money policy, dubbed “Abenomics.”
And in a stark acknowledgement of the huge job they have in ending a years-long fight to reinvigorate the economy, bank policymakers cut their inflation forecasts and pushed back the timeline for reaching their inflation goal.
The BOJ also warned over the negative impact of the economic crisis gripping key trading partner China, and said it was prepared to cut rates further below the new minus-0.1 percent level “as necessary.”
A similar policy was adopted by the European Central Bank in 2014, the first time by a major central bank. Yesterday’s announcement is the latest throw of the dice by authorities as Abenomics has struggled to gain traction since its launch in 2013.
“It was a surprise to most market players, who thought negative interest rates would be a last resort,” Dai-ichi Life Research Institute senior economist Koichi Fujishiro said.
The rate change passed by a narrow vote among BOJ policy members, who kept their ￥80 trillion (US$673 billion) annual asset-buying plan unchanged.
“Concerns had been mounting that the BOJ were increasingly tapped out in their ability to ease monetary policy any further, and today’s 5-4 decision shows how bitter the divide between hawks and doves is,” Melbourne-based IG Ltd market analyst Angus Nicholson said.
BOJ Governor Haruhiko Kuroda is keeping a close eye on wage increases in spring negotiations, while policymakers hope that putting more cash in shoppers’ wallets will spur spending and move Japan closer to the bank’s inflation target.
“Governor Kuroda has gained notoriety by changing course when it is least expected, and today’s move will only serve to cement this reputation,” Marcel Thieliant from research house Capital Economics said in a commentary.
Data earlier yesterday painted a worrying picture of Japan’s economic malaise, with inflation at a well-below-target 0.5 percent last year.
Also, spending by households last month fell 4.4 percent from a year ago and monthly industrial production contracted 1.4 percent.
The economy grew a stronger-than-expected 0.3 percent in July-September, after initial estimates had shown a contraction. Fourth-quarter data is due next month.
However, a lackluster global economy, marked by the slowdown in China and weakness in emerging markets, is posing challenges to the recovery.
The BOJ yesterday warned over the decline in crude oil prices and uncertainty about “future developments in emerging and commodity-exporting economies, particularly the Chinese economy.”
Last month, policymakers rolled out a series of changes, including boosting their holdings in firms dedicated to capital spending and new hiring. They also made some other tweaks to their massive bond-buying program without expanding the size of the scheme, but speculation has been building that they will have to do so in order to light a fire under the economy.
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