Bank of Japan cuts key interest rate into negative territory
by Jethro Mullen @cnnmoney
January 29, 2016: 4:14 AM ET
Japan's central bank is stepping up its efforts to kick-start the country's struggling economy by taking a key interest rate into negative territory.
The Bank of Japan said Friday that it will cut the rate on current accounts that commercial banks hold with it to minus 0.1%, adding that it will push the rate even lower if needed. The move basically means lenders will be charged to keep money with the central bank.
In theory, negative rates encourage banks to lend more and consumers to spend rather than save. They can also weaken a country's currency, helping exporters.
It's a step that the European Central Bank, among others, has already taken, resulting in bizarre situations where banks can end up paying customers who borrow from them. The idea has also been floated in the United States.
The Bank of Japan announcement Friday is the latest surprise move by its governor, Haruhiko Kuroda, in his drive to spur momentum in the world's third-largest economy. He had previously denied plans to take the interest rate below zero.
"Governor Kuroda has gained notoriety by changing course when it is least expected, and today's move will only serve to cement this reputation," said Marcel Thieliant of Capital Economics.
Investors responded positively to the announcement. Stocks in Tokyo rose 2.8% and the country's currency, the yen, fell against the dollar.
Financial markets' turbulent start to 2016 has been particularly punishing for Japan. Prior to the central bank's move, stocks had tanked around 10% in January, and the yen had strengthened.
The plunge in crude oil prices, meanwhile, has made it even harder for the Bank of Japan to hit its inflation target of 2%.
The central bank said the Japanese economy was in the midst of a moderate recovery, but it expressed concerns about plummeting oil prices and the uncertain outlook for emerging economies, especially China.
It's unclear how much difference subzero rates will make to the Japanese economy. The ECB has used them among an array of stimulus efforts, but the euro zone has continued to struggle with deflation.
"With interest rates already at record lows, we do not expect these measures to have a significant impact on the real economy, or inflation," said Izumi Devalier, Japan economist at HSBC.
The Bank of Japan's decision to introduce a negative interest rate was also far from unanimous. Five policy board members voted in favor, but four opposed the move.
Japan has long struggled with deflation, and prices have been stagnating despite the central bank's aggressive stimulus measures in recent years that include a massive bond-buying program. It said Friday that it was leaving its asset-purchase plan unchanged.
The bank's moves have come at a time when the government of Prime Minister Shinzo Abe has tried to jolt the economy into life by increasing spending and pushing through reforms. That program took a hit Thursday when Abe's economy minister announced his resignation over a political-funding scandal.
The Bank of Japan's announcement also follows closely watched statements from other major central banks amid the recent market turmoil.
Last week, ECB President Mario Draghi gave stocks a lift by promising that the bank could pump out more money as early as March if necessary.
The U.S Federal Reserve, which raised interest rates last month, said Wednesday it was "monitoring global economic and financial developments."
CNNMoney (Hong Kong)
First published January 28, 2016: 11:04 PM ET
money.cnn.com/2016/01/28/news/economy/bank-of-japan-negative-interest-rate/index.html?section=money_topstoriesStocks surge on Japan's negative rates surprise by Alanna Petroff @alannapetroff
January 29, 2016: 5:57 AM ET
It's the last trading day of January and it's off to a positive start thanks to a surprise move by Japan's central bank.
Here are the five things you need to know before the opening bell rings in New York:
1. Japan goes negative, markets go positive: The Bank of Japan is stepping up its efforts to push the country's struggling economy forward by taking interest rates into negative territory.
The central bank announced Friday that it will introduce an interest rate of minus 0.1%, and will go even lower if needed.
In theory, negative rates encourage consumers to save less, and borrow and spend more. They can also weaken a country's currency, helping exporters.
Unsurprisingly, the yen dropped sharply versus all major global currencies on Friday. The interest rate move pushed Japan's key stock market index up by 2.8%.
2. Stock markets surge: The interest rate move in Japan is having ripple effects around the world.
U.S. stock futures are rising by about 1% as investors cheer the latest official effort to pump free money into the financial system.
European markets are also rising by about 1% to 2%. And all Asian stock markets closed the week with gains.
3. Main market movers -- Amazon, Microsoft, Xerox, Sony, Sky: Shares in Amazon (AMZN, Tech30) are falling by 12% premarket after the company's earnings badly missed Wall Street forecasts.
Shares in Microsoft (MSFT, Tech30) are rising by about 4% premarket after the tech giant reported better-than-expected quarterly results.
Investors are watching Xerox (XRX) as the company is expected to announce it will split itself into two companies. The firm is also reporting earnings Friday morning.
Shares in Sony (SNE) surged by 6% in Japan after the company reported quarterly results that beat market expectations. The company said strong revenue from its movies and PlayStation 4 helped offset declines in other business units.
Shares in the European broadcast giant Sky (SKYAY) are rising by 2% in London after the company announced James Murdoch will return as chairman in April. It's a job he held from 2007 to 2012. He stepped down amid a massive phone hacking scandal. James, one of Rupert Murdoch's sons, is also CEO at 21st Century Fox (FOX), which owns a 39% stake in Sky.
4. Earnings and economics: Xerox, along with MasterCard (MA), Chevron (CVX), Whirlpool (WHR) and Colgate-Palmolive (CL) are among the long list of companies reporting ahead of the open.
On the economic front, the U.S. government is releasing its latest GDP data for the fourth quarter at 8:30 a.m. ET.
The Russian central bank kept interest rates unchanged at 11%, despite a deep recession that is causing growing discontent among Russians. The ruble is trading near record lows.
Official European inflation data shows prices across the region rose 0.4% in January, which was in line with expectations. Prices rose by a measly 0.2% in December.
5. January market recap: It was a crazy, volatile, eventful month in the markets.
The Dow Jones industrial average has fallen by nearly 8%, the S&P 500 is down by 7.4% and the Nasdaq has plunged 10%.
CNNMoney (London)
First published January 29, 2016: 5:25 AM ET
money.cnn.com/2016/01/28/news/economy/bank-of-japan-negative-interest-rate/index.html?section=money_topstories