BOJ cuts key interest rate to -0.1%, will cut lower if needed

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Japan’s central bank is stepping up its efforts to kick-start the country’s struggling economy by taking a key interest rate into negative territory.

The Bank of Japan said Friday that it will cut the rate on current accounts that commercial banks hold with it to minus 0.1%, adding that it will push the rate even lower if needed. The move basically means lenders will be charged to keep money with the central bank.

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Japan’s central bank is stepping up its efforts to kick-start the country’s struggling economy by taking a key interest rate into negative territory.

The Bank of Japan said Friday that it will cut the rate on current accounts that commercial banks hold with it to minus 0.1%, adding that it will push the rate even lower if needed. The move basically means lenders will be charged to keep money with the central bank.

Investors responded positively to the announcement. Stocks in Tokyo rose 2.8% and the country’s currency, the yen, fell against the dollar.

Financial markets’ turbulent start to 2016 has been particularly punishing for Japan. Prior to the central bank’s move, stocks had tanked around 10% in January, and the yen had strengthened.

The plunge in crude oil prices, meanwhile, has made it even harder for the Bank of Japan to hit its inflation target of 2%.

The central bank said the Japanese economy was in the midst of a moderate recovery, but it expressed concerns about plummeting oil prices and the uncertain outlook for emerging economies, especially China.

It’s unclear how much difference subzero rates will make to the Japanese economy. The ECB has used them among an array of stimulus efforts, but the euro zone has continued to struggle with deflation.

“With interest rates already at record lows, we do not expect these measures to have a significant impact on the real economy, or inflation,” said Izumi Devalier, Japan economist at HSBC.

 

 

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About Kelvin Ching

I'm a professional Forex trader and I have been trading for over 7 years. I was a series 3 broker and a registered CTA with the NFA, the main regulatory agency in the United States, and I have been involved at the highest levels in commodity trading. I also have a background in Information Technology, graphics design, and programming... I'm the co-founder of CurrencyNewsTrading.com, a site dedicated to fundamental analysis and news trading.

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