The Bank of Japan on Friday introduced a negative interest rate policy, a move aimed at boosting a stumbling economic recovery and warding off deflation. Markets jumped on the intervention.
Tokyo's central bank hopes that by imposing a 0.1% fee on selected current account deposits — effectively a negative interest rate — commercial banks will be encouraged to make more loans and so stimulate economic growth. Japan's economy is forecast to grow just 1.1% in 2015 and 1.7% in 2016.
Japan's benchmark Nikkei 225 stock index immediately leaped higher on the news. It ended the trading session up 2.8% at 17,518.30. China's Shanghai composite advanced 3.1% to 2,737.60. The Japanese yen initially slid after the announcement before recovering to rise 1.7% against the dollar to 120.79.
The Bank of Japan said in a statement that it would cut rates further into negative territory if it needed to push borrowing costs even lower. It said the policy would continue as long as needed to achieve an inflation target of 2%.
Japan has experienced widespread deflation, or falling prices, for decades. By lowering borrowing costs, the central bank is hoping that consumers will spend more and stimulate inflation, or rising prices. Members of the Bank of Japan's monetary policy board voted by 5-4 to adopt the lower rates.
"A week ago Bank of Japan Governor (Haruhiko) Kuroda suggested (at the World Economic Forum) in Davos that further easing was on the cards, (but) a move to negative rates was not expected," said Simon Smith, chief economist at FxPro Insights, an online trading broker, in emailed comments.
Regional European indexes saw broad-based gains Friday. Britain's FTSE 100 index added 1.1%. Wall Street was on track to open higher by a similar amount. Later Friday the U.S. government will unveil its first estimate for fourth-quarter economic growth. Forecasters expect a modest figure of 0.8%.
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