After its two-day January meeting and for the first time in its history, the Bank of Japan has adopted negative interest rates in its fight against deflation. From today the BoJ will charge financial institutions 0.1% on excess reserves that are deposited with the central bank. The system is three-tiered and the changes only related to the highest tier (excess deposits) with the central bank.
YieldReport understands that there have been no changes to the BoJ’s record bond buying programme.
The yen immediately weakened against the USD by around 2% and the Nikkei share index jumped around 3%. The Bank board was slit 5-4 on the decision that surprised markets with the decision that will take effect on 16 Feb. Japanese bond yield plummeted on the news withJapanese 10 year bonds falling from 0.23% to 0.9%, the lowest on record.
Governor Kuroda has reiterated a number of times in the past few months that he will do whatever it takes to meet the Bank’s goal of sustainable inflation. Inflation in the Japanese economy has been weak on the back of falling energy prices and lack of wages growth, making the BoJ’s job increasingly difficult.