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BoJ Introduces Negative Interest Rate; Cuts Inflation Outlook

Bank Of Japan 012916

The Bank of Japan announced plans to introduce negative interest rate in order to achieve its 2 percent inflation at the earliest possible time but left its massive asset purchase program unchanged.

The bank also pushed back the projected timing for reaching inflation target, citing lower crude oil prices.

The policy board of the BoJ on Friday voted 5-4 to apply -0.1 percent interest rate on current accounts that financial institutions maintain at the bank. The board said it will cut the rate further into negative territory, if judged as necessary.

The negative rate will affect only a portion of current accounts as it adopts a "three-tier-system". The outstanding current account balance of each financial institutions will be divided into three tiers to which a positive, zero and negative interest rate will be applied.

The decision surprised investors as Governor Haruhiko Kuroda recently said the bank does not plan to lower interest rate.

The BoJ also decided to hold its target of raising the monetary base at an annual pace of about JPY 80 trillion.

The central bank today downgraded its fiscal 2016 inflation forecast to 0.8 percent from 1.4 percent estimated in October. The bank expects inflation to reach 1.8 percent in the year ending March 2018.

Meanwhile, the bank expects the economy to continue growing at a pace above its potential through fiscal 2016. The bank raised its growth forecast for fiscal 2016 slightly to 1.5 percent from 1.4 percent

Thereafter, the economy is projected to slow to a level somewhat below the potential growth rate. The bank maintained its outlook for fiscal 2017 at 0.3 percent.

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