WORLD NEWS: BUSINESS - Japan adopts negative interest rate in surprise move

In a surprise move, the Bank of Japan has introduced a negative interest rate.

The benchmark rate of -0.1% means that the central bank will charge commercial banks 0.1% on some of their deposits.

It hopes this will encourage banks to lend and counter the ongoing economic slump in the world's third-largest economy.
The European Central Bank also has negative rates, however, it is a first for Japan.

The decision came in a narrow 5-4 vote at the Bank of Japan's first meeting of the year on Friday.

"The BOJ will cut interest rates further into negative territory if judged as necessary," the Bank of Japan said, adding it would continue as long as needed to achieve an inflation target of 2%.

Some analysts have cast doubt over how effective the rate cut will be.


Earlier in the day, fresh economic data had again highlighted concerns over economic growth. The December core inflation rate was shown to be at 0.1% - far below the central bank target.

Asian shares jumped and the yen fell across the board in reaction to the announcement. Japanese banks though saw their shares drop on the news as lenders are likely to see their margins squeezed even more.

There are doubts, however, over how well the new policy will work.

"Negative interest rates are one of the last instruments in the BOJ's tool box," Martin Schulz of the Fujitsu Institute in Tokyo said. "But their impact is unlikely to be strong."

Mr Schulz cautioned that in the eurozone, negative interest rates are being used to tackle a financial crisis, whereas Japan is in a protracted slow growth environment.

"In Japan, credit didn't expand not because banks were unwilling to lend but because businesses didn't see the investment perspective to borrow. Even with negative interest rates, this situation will not change."

"Businesses don't need money - they need investment opportunities. And that can only be achieved by structural reforms, not by monetary policy," he said.

The decision comes in addition to the BOJ's massive asset-buying programme, which over the past years had failed to boost growth.

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