The Bank of Japan has stunned markets by moving interest rates into negative territory, effectively charging financial institutions to park money with the central bank. But will it make a difference to the real economy? Kirsty Basset reports.
It's a policy Bank of Japan Governor Haruhiko Kuroda said just last week, he wouldn't be introducing. Fast forward days later, and the bank has stunned investors by unexpectedly cutting a benchmark interest rate below zero. Commerzbank Economist, Peter Dixon. (SOUNDBITE) (English) COMMERZBANK GLOBAL FINANCIAL ECONOMIST PETER DIXON, SAYING: "Why the turnaround? It's kind of difficult to say. Other than, you know, central banks around the world are running out of options." The Bank of Japan's policy board decided in a narrow 5-4 vote to move into negative rates. Excess reserves parked at the Bank of Japan will now attract a charge of 0.1 per cent. It's intended to spur inflation by forcing lenders to put their cash into circulation. But there are doubts it will have any impact on the real economy (SOUNDBITE) (English) COMMERZBANK GLOBAL FINANCIAL ECONOMIST PETER DIXON, SAYING: "Those people who have cash and are holding onto it are more likely to stick it under the mattress I think than to actually spend it. So I'm very skeptical that a policy of cutting interest rates into negative territory in an economy which has Japan's problems is going to make an awful lot of difference." Kuroda later told a news conference the BOJ would do whatever it takes to achieve inflation at 2 per cent. (SOUNDBITE) (English) COMMERZBANK GLOBAL FINANCIAL ECONOMIST PETER DIXON, SAYING: "I think it reflects a kind of desperation on the part of the Japanese authorities to do something, just to try and get inflation moving in the right direction." The yen slumped and the yield on Japanese benchmark government bonds plunged to record lows on the news. The central bank said it would cut interest rates further into negative territory, if necessary.