Chart Of The Week: Japan Joins The Negative Rate Club

Last Friday, it was the Bank of Japan’s turn in the monetary policy hot seat. And, in an unforeseen turn of events, Governor Kuroda announced that Japan would be joining Switzerland, Sweden and Denmark in introducing a tiered rate of interest on financial institutions’ current account deposits. Five out of nine Committee members voted for a rate of minus 0.1% to be applied to a portion of banks’ reserves, even as the BoJ’s preferred measure of underlying inflation rose to a record 1.3%.

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The BoJ’s introductory document to “quantitative and qualitative monetary easing with a negative interest rate” suggests that last Friday’s decision was motivated by global developments. Indeed, it states that Committee members felt that Japan’s economy had “continued to recover moderately”, but were concerned by external developments, “particularly the Chinese economy.”

Like us, markets were surprised by the Bank of Japan’s sudden sensitivity to overseas turmoil, with Friday’s announcement triggering a 1.9% depreciation in the Japanese Yen, to 121 against the US dollar. Meanwhile, equities rallied with the Nikkei 225 gaining 4.8% by close of play on Monday. Last week, the US Federal Reserve also said that it is “closely monitoring global economic and financial developments”.