- Daiju Aoki, an economist at UBS Securities
The Bank of Japan surprised markets with a negative benchmark interest rate, a move aimed at boosting a faltering recovery in the world's third biggest economy in light of elevated volatility on financial markets and slowing global growth. In a 5-4 vote, the BoJ's policy makers decided to charge a 0.1% interest on current accounts that some commercial banks hold with it. The central bank hopes that the move will encourage banks to lend more and stimulate investment and growth. The BoJ said that it would divide bank's deposits into three tiers, with categories earning positive, zero and negative interest rates. The policy would continue as long as needed to achieve its inflation target. Meanwhile, the central bank pushed back its timeframe for reaching the goal from late 2016 to mid-2017. The BoJ kept its pledge to expand base money at an annual pace of 80 trillion yen through aggressive purchases of Japanese government bonds and risky assets conducted under its QQE programme.
The surprise interest rate decision came in light of data that showed household spending and output fell in December, signalling further the fragile nature of Japan's recovery. Industrial production dropped 1.4% on month in December, while on an annual basis industrial output was 1.6% lower. At the same time, spending by households plummeted 4.4% on year last month, compared with the 2.3% decline expected by analysts.
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