Bank of Japan moves to set Negative Interest Rates | tutor2u Economics
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Bank of Japan moves to set Negative Interest Rates

The Bank of Japan has made an unexpected move to cut their main interest rate into negative territory in a bid to bring the exchange rate down and help avoid price deflation in the beleaguered Japanese economy. 

In Japan the negative rates only apply to new bank reserves and not existing bank deposits but the effect of this move will accumulate over time. There was a 5-4 vote to make the move suggesting a division of opinion within the central bank about whether this was the right move to make. 

Initially the Japanese Yen is depreciating in the currency markets and the stock market is higher .... but this is a story worth watching as Japan tries once again to use monetary policy to stimulate aggregate demand and lift their economy out of over two decades of sluggish growth.  

More here on this move from the Wall Street Journal

Charging banks for the privilege of parking some of their excess funds was an unexpected move, although not without precedent. Central banks in Europe, notably the European Central Bank, have slashed interest rates below zero before to push down borrowing costs and prod banks to lend more.


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