Home' Trinidad and Tobago Guardian : January 31st 2016 Contents JANUARY 31 • 2016 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG15
The Bank of Japan on Friday
said it will charge lenders
that leave too much cash on
idle deposit with it, intro-
ducing a negative interest
rate policy for the first time
as it seeks to shore up a stumbling economic
The surprise move rattled stock market
investors, with the Nikkei 225 index swinging
between gains and losses after the announce-
ment. It closed 2.8 percent higher. The Japan-
ese yen slid, with the US dollar rising to
about 120.70 yen from about 118.50 earlier
in the day.
The central bank said it is imposing a 0.1
per cent fee on some new commercial bank
deposits with the BOJ, effectively a negative
interest rate. It hopes that will encourage
commercial banks to lend more, rather than
keeping cash at the BOJ, and stimulate invest-
ment and growth in the world s third-largest
The BOJ said in statement that Japan s
economy is still recovering, but risks from
volatile global financial markets could under-
mine confidence and slow progress toward
the central bank s 2.0 per cent inflation tar-
get.Bank deposits with the BOJ will be divided
into three tiers. Existing current account
balances will earn a 0.1 per cent positive
interest rate. Required reserves held at the
central bank by financial institutions will
earn zero interest. Any additional current
account deposits would incur the minus 0.1
per cent rate, the BOJ said.
The bank "will cut the interest rate further
into negative territory if judged as necessary,"
It said the policy would continue as long
as needed to achieve its inflation target. In
the meantime, the BOJ pushed back its time-
frame for achieving that goal from late 2016
"We think there is an increasing risk that
an improvement in the business confidence
of Japanese firms and the conversion of
deflationary mindset may be delayed, and
that the underlying trend in prices might be
negatively affected," BOJ Gov Haruhiko Kuro-
da said at a news conference.
The European Central Bank has already
imposed negative interest rates, after leaving
interest rates near zero failed to entice banks
into seeking higher returns through lend-
In Japan, keeping interest rates near zero
has likewise failed to yield the desired results,
raising doubts about the credibility of the
quantitative and qualitative monetary easing
policies announced by BOJ Gov Haruhiko
Kuroda in April, 2013.
Data on Friday showed Japan s core infla-
tion rate for 2015, excluding volatile food
prices, at 0.5 per cent.
That and other figures show the economy
remained anemic last year, as stagnant
incomes, the slowdown in China and the
mixed blessing of lower oil prices hobbled
Prime Minister Shinzo Abe s recovery strat-
Consumer spending fell 4.4 per cent in
December from a year earlier, as households
chose to save rather than splurge on any
gains from the low oil prices that are slowing
inflation. It was the fourth straight month
of year-on-year declines.
Industrial output fell 1.6 per cent in
December from a year earlier, partly due to
slower demand for machinery and electronics
components and devices in China.
"Today s activity data were disappointing
and suggest that Japan s economy barely
grew last quarter," Marcel Thieliant of Capital
Economics said in a commentary.
Abe took office three years ago vowing to
get growth back on track through massive
injections of cash by the government and
central bank, and by sweeping reforms to
The central bank said Friday it would also
persist with its "quantitative easing" pur-
chases of about 80 trillion yen (about $660
billion) of government bonds a year.
The aim is to end a long spell of deflation,
or falling prices, that is thought to be dis-
couraging corporate investment. But while
corporate profits have soared as massive
stimulus weakened the Japanese currency,
making earnings made abroad worth more
when converted into yen, investment and
wages have lagged.
Average incomes fell 2.9 per cent from a
year earlier in December. Even though unem-
ployment was steady at 3.3 per cent and the
job market remained tight, companies wary
over the economic outlook are opting not
to raise pay.
Some economists contend that the "Abe-
nomics" focus on inflation as a spur to
growth is misplaced. Pushing the banks to
lend will only work if companies borrow
"Corporate Japan has accumulated sub-
stantial cash on balance sheets, while the
Japan labor market is getting tighter," Ajay
Kapur of Merrill Lynch said in a recent report.
"The key is to recirculate Japan s corporate
cash to Japan s household-labour sector via
wage increases. Otherwise, Abenomics is
likely to fail in generating self-sustaining
growth," he said. AP
The Bank of Japan announced it had cut the rate on
excess reserves to minus 0.1 per cent, meaning institutions
will have to pay the central bank for the privilege of
parking reserves that exceed those required by regulators.
The rate on most existing reserves, however, remains at
0.1 per cent, while the rate for required reserves was cut
to zero. Unlike the single negative rate applied to deposits
parked at the European Central Bank, the Japanese move
is similar to tiered measures put in place by the Swiss
National Bank, which punishes sight deposits, or com-
mercial bank assets, of more than 320 billion Swiss francs
($312.5 billion) with a fee of 0.75 per cent.
Why would it do that?
The move does speak to a certain degree of desperation.
There appear to be a number of reasons for the move.
The most pressing is the fact that the Bank of Japan
continues to struggle to achieve its goal of pushing
inflation back up to 2.0 per cent---considered a healthy
level for most economies. The central bank on Friday
further pushed out its timetable for achieving that goal
to the first half of 2017.
Part and parcel of those concerns is the recent strength
of the Japanese yen. While the currency has weakened
sharply since late 2012 when the dollar fetched less than
¥80, it had found some renewed strength recently. Some
analysts saw the level as a possible line in the sand that
might have spooked some policy makers and contributed
to Friday s decision.
Weak economic data and concerns that the bank s
ability to expand its already sizable asset-buying program
amid liquidity concerns are also seen contributing to
the move. In the wake of the BoJ s decision Friday, the
yen plummeted to its lowest level in five weeks against
the dollar to ¥121.00 compared with ¥118.84 late Thurs-
How do negative interest rates work?
Central banks use their deposit to influence how banks
handle their reserves. In the case of negative rates, central
banks want to dissuade lenders from parking cash with
them. The hope is that they will use that money to lend
to individuals and businesses, which, in turn, will spend
the money and boost the economy and contribute to
inflation. It is also aiming to force investors to shift
money out of bank accounts and into higher-yielding
So this has been done elsewhere?
The European Central Bank in June 2014 was the first
major central bank to venture into negative territory fol-
lowed by the Swiss National Bank in December 2014.
The Danish central bank has also employed negative
rates to defend its currency s peg to the euro, while Swe-
den s rates are also in negative territory.
And former Federal Reserve chief Ben Bernanke has
said that in the event of a serious downturn, negative
interest rates are a tool that the US central bank should
Many economists see the Bank of Japan s move as
a testing of the waters. They expect the central bank to
follow through with further cuts to the deposit rate,
perhaps approaching the negative 0.75 per cent rate in
place in Switzerland.
What does it mean for other central banks?
The term "currency wars" is getting thrown around
a lot this morning. The move has significantly raised
expectations the European Central Bank will follow
through in March with a further cut in its deposit rate
and expansion of its own asset-buying programme.
European money market rates are pricing in a more than
100 per cent likelihood of a 10-basis-point March cut
by the ECB and an almost 100 per cent likelihood of
a cumulative 20-basis-point cut by year-end, noted
analysts at Barclays. Then there is the Fed. The move
raises questions about the central bank s ability to further
raise interest rates in the face of a rising dollar, which
highlights the widening divergence of global monetary
Governor of the Bank of Japan
Haruhiko Kuroda at the head office
in Tokyo Friday, January 29, 2016.
The Bank of Japan has introduced a
negative interest policy in a move to
boost the stumbling recovery of the
world's third-largest economy.
Japan introduces negative
interest rate to boost economy
What you need to know
Links Archive January 30th 2016 February 1st 2016 Navigation Previous Page Next Page