Risk of global market turmoil played into negative interest rate decision
Nikkei Asian review: 29 January 2016
TOKYO -- The decision to adopt a negative interest rate was made "to prevent risks from China and emerging economies," BOJ Gov. Haruhiko Kuroda told reporters on Friday.
The Bank of Japan's move stunned market participants. It was "beyond a surprise," Mari Iwashita of SMBC Friend Securities said, "it was shocking."
However, China's slowdown and oil price woes have continued to stir markets. Before Friday's "shock," the Nikkei Stock Average in January had lost more than 3,000 points and the yen had strengthened to 115.97 at one point against the U.S. dollar.
The turmoil was "bizarre" enough for the BOJ to revise its core inflation forecast for fiscal 2016 down to 0.8% from the previous 1.4% -- and to change its mind about going negative. Last week, before leaving for meetings in Davos, Switzerland, Kuroda told BOJ staff to consider additional easing options.
By adopting a negative rate, the BOJ is aiming to boost "consumption and investment activities by pushing the yield curve down," Kuroda said.
Up to now, the BOJ's monetary policy under Kuroda had been to purchase assets at an annual pace of 80 trillion yen. But these purchases were seen "reaching the limits of their effectiveness," said Ryutaro Kono, chief economist at BNP Paribas Securities Japan.
Kuroda denied this was part of the decision, however. "It absolutely doesn't mean that asset purchasing has reached its limit," he said, stressing the policy has been effective in pushing up consumer prices.
The negative rate on deposits that banks keep with the BOJ is to start next month. Financial institutions will have to pay 0.1% interest on a portion of their deposits parked at the bank.
The aim is to encourage banks to take the money and invest or lend it.
The BOJ is hoping to dodge concerns brought on by going negative with a three-tiered structure; only one "tier" of financial institutions' deposits at the central bank will be subject to the negative rate.
"Every easing policy has a short-term negative influence among financial industries," Kuroda said.
With a negative interest rate added to the BOJ's current quantitative and qualitative easing program, monetary policy is now "three dimensional," the governor said.
To achieve its price stability target of 2%, the BOJ "will examine risks to the economy and prices, and will not hesitate to take additional steps if needed," Kuroda said, signaling the possibility of the rate going deeper into negative territory or the BOJ expanding its asset-purchasing program.
Nikkei Asian review: 29 January 2016
TOKYO -- The decision to adopt a negative interest rate was made "to prevent risks from China and emerging economies," BOJ Gov. Haruhiko Kuroda told reporters on Friday.
The Bank of Japan's move stunned market participants. It was "beyond a surprise," Mari Iwashita of SMBC Friend Securities said, "it was shocking."
Last month, Kuroda squelched speculation that the central bank might adopt a negative interest rate. "I do not think we should install one," he said in December. On Jan. 14, he denied the possibility of additional easing.
The turmoil was "bizarre" enough for the BOJ to revise its core inflation forecast for fiscal 2016 down to 0.8% from the previous 1.4% -- and to change its mind about going negative. Last week, before leaving for meetings in Davos, Switzerland, Kuroda told BOJ staff to consider additional easing options.
By adopting a negative rate, the BOJ is aiming to boost "consumption and investment activities by pushing the yield curve down," Kuroda said.
Up to now, the BOJ's monetary policy under Kuroda had been to purchase assets at an annual pace of 80 trillion yen. But these purchases were seen "reaching the limits of their effectiveness," said Ryutaro Kono, chief economist at BNP Paribas Securities Japan.
Kuroda denied this was part of the decision, however. "It absolutely doesn't mean that asset purchasing has reached its limit," he said, stressing the policy has been effective in pushing up consumer prices.
The negative rate on deposits that banks keep with the BOJ is to start next month. Financial institutions will have to pay 0.1% interest on a portion of their deposits parked at the bank.
The aim is to encourage banks to take the money and invest or lend it.
"Every easing policy has a short-term negative influence among financial industries," Kuroda said.
With a negative interest rate added to the BOJ's current quantitative and qualitative easing program, monetary policy is now "three dimensional," the governor said.
To achieve its price stability target of 2%, the BOJ "will examine risks to the economy and prices, and will not hesitate to take additional steps if needed," Kuroda said, signaling the possibility of the rate going deeper into negative territory or the BOJ expanding its asset-purchasing program.
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