BoJ Sets Negative Interest Rate
The Bank of Japan kept its pledge to increase the monetary base at an annual pace of about 80 trillion yen at its January 2016 meeting, but said it had adopted a benchmark rate of -0.1 percent.
1/29/2016 8:41:15 AM
The surprise decision to introduce a negative interest rate while maintaining the current pace of its monetary base was made in a 5 to 4 vote, aiming to achieve price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner
Some key points of the policies, as published on the central bank's website:
The BoJ will apply a negative interest rate of minus 0.1 percent to current accounts that financial institutions hold at the bank. It will cut the interest rate further into negative territory if judged as necessary. The move is designed to enable policymakers to pursue additional monetary easing in terms of three dimensions, combining a negative interest rate with quantity and quality.
Based on those policies the bank will lower the short end of the yield curve and will exert further downward pressure on interest rates across the entire yield curve through a combination of a negative interest rate and large-scale purchases of JGBs.
The central bank will achieve the price stability target of 2 percent at the earliest possible time by making full use of possible measures in terms of the three dimensions.
Policymakers will also introduce a multiple-tier system which some central banks in Europe (e.g. the Swiss National Bank) have put in place. Specifically, it will adopt a three-tier system in which the outstanding balance of each financial institution's current account at the Bank will be divided into three tiers, to each of which a positive interest rate, a zero interest rate, or a negative interest rate will be applied, respectively.