You are 100% correct.
Posted on 01/29/2016 3:27:36 AM PST by TigerLikesRooster
In shocking move, Japan adopts negative interest rate as deflation fight falters
The Bank of Japan unexpectedly adopted a negative interest rate policy Friday, stunning investors with a move aimed at shielding the country's sluggish economy from volatile markets and slowing global growth.
The BOJ said it would use a three-tiered system to charge for excess reserves parked with the institution, an aggressive policy pioneered by the European Central Bank that penalizes banks for holding cash and encourages them to loan it out.
"The BOJ will cut the interest rate further into negative territory if judged as necessary," the central bank said in a statement announcing the decision.
Sliding oil prices and the murky global economic outlook are "raising fears of a negative impact on Japanese companies and the conversion of the deflationary mindset," BOJ Gov. Haruhiko Kuroda told a news conference later in the day.
The surprise move sent markets gyrating, with the yen falling sharply and the Nikkei stock index jumping 2.8 percent to close the day's trading at 17,518.30 amid concern over the outlook for the global economy, China's slowdown and the collapse of crude oil prices.
The yield on the benchmark 10-year Japanese government bond, the yardstick for long-term interest rates, fell to a record-low 0.090 percent at one point, marking the first dip below 0.1 percent on record.
The surprise decision came after slumps in household spending and output for December were announced the same day, underscoring the fragile nature of the recovery.
Bank shares tumbled in response. Mitsubishi UFJ Financial Group Inc., the nation's biggest bank, fell as much as 8.8 percent, Sumitomo Mitsui Financial Group Inc. slid as much as 6.6 percent and Mizuho Financial Group Inc. dropped 5.2 percent, although they recovered from lows by the close of trading in Tokyo.
Kuroda said last week that the central bank was not thinking of adopting a negative interest rate policy and told the Diet that further easing would likely take the form of an expansion in its massive asset-buying program. But in a 5-4 vote, the BOJ Policy Board decided to charge 0.1 percent interest starting Feb. 16.
The three-tier system will apply to financial institutions' current accounts and is similar to programs adopted by some central banks in Europe, the BOJ said, explaining that:
Existing balances will continue to have a rate of 0.1 percent. This will be called the Basic Balance.
A rate of zero percent will be applied to the reserves that institutions are required to keep at the BOJ, and also the reserves related to its various lending support programs. This is called the Macro Add-on Balance.
A rate of minus 0.1 percent will be applied to any reserves not included in the first two tiers. This is called the Policy-Rate Balance.
With the bulk of banks' reserves still receiving a positive 0.1 percent rate, this could help to contain any negative spillover effects, such as earnings damage that would undermine lending and growth.
Also, the BOJ delayed the timing for achieving its 2 percent price target to around the six months starting in April 2017, the third postponement in less than a year. It now sees inflation rising 0.8 percent in the 12 months starting this April, down from a previous forecast of 1.4 percent.
The BOJ said the move was aimed at forestalling the risk of global financial turbulence that could hurt business confidence and revive the "deflationary mindset" it has been striving to wipe out with aggressive money printing.
"Kuroda had been saying that he didn't think something like this would help so it is a bit surprising and it's clear the market has been surprised by it," said Nicholas Smith, a strategist at CLSA based in Tokyo.
"The banking sector is getting smoked right now, though everything else seems to be doing just fine. This has obviously had a big effect on inflation and on inflation expectations."
The ECB became the first major central bank to go negative in June 2014.
The BOJ meanwhile maintained its pledge to expand the nation's financial base at an annual pace of ¥80 trillion by aggressively purchasing Japanese government bonds and risky assets under its unorthodox quantitative and qualitative easing program.
Markets have been split on whether the central bank would ease policy amid slumping oil costs and soft consumer spending that have brought inflation to a halt.
In a quarterly review of its forecasts released the same day, the BOJ cut its core consumer inflation forecast for fiscal 2016 to 0.8 percent from 1.4 percent projected three months ago.
But it now expects inflation to accelerate to 1.8 percent in fiscal 2017 ending in March 2018, after taking into account the effect of Friday's measures.
Analysts pointed out that the BOJ is running out of room to maneuver with its QQE program as it is quite simply running out of assets to buy.
"I think this is a regime change and the BOJ's main policy tool is now negative interest rates," said Daiju Aoki, an economist at UBS Securities in Tokyo. "This shows that the ability to buy more JGBs is limited."
Inflation of just 0.1 percent in the year to December revived expectations for the BOJ to eventually deliver more stimulus.
Many BOJ policymakers have been wary of using their diminishing policy tools to counter what they see as factors beyond their control, such as volatile financial markets and China's slowdown.
But pessimists on the BOJ board have worried that slumping Tokyo stocks may discourage firms from boosting capital spending, threatening the positive momentum it is trying to create with its aggressive money-printing program. STAFF REPORT
Japanese savers faced the shock of negative interest rates on their bank balances on Friday, as the Bank of Japan's monetary policy committee took the unprecedented move to get the nation spending.
Five of the nine members of the BOJ Policy Board were in favor of the rate of minus 0.1 percent. The news followed a two-day meeting by the board.
The yen weakened sharply on the news as currency traders sold up. The Nikkei stock average gained a swift 1.1 percent as trading resumed after Friday's lunch break.
Negative interest rates punish banks for holding cash. This encourages them to get rid of it in the form of loans, which aids businesses and people looking to buy a home.
It was the BOJ's first move on its benchmark move in five years.
Meanwhile, the bank decided not to expand its monetary easing, but said it has not ruled out doing so later. The Policy Board meets again in March.
The BOJ is aiming for 2 percent inflation, but deflationary pressures such as low oil prices threaten that goal in the near- to mid-term.
No, it doesn't. But Keynesianism and Monetarism have held sway so long, that hardly anyone knows anything else.
The government's power to control the currency is now held as natural law. That money's quantity and value were once determined by market forces [i.e., the people] is becoming lost knowledge.
I wish I had the money to go to Japan. You are now getting over 120 yen per dollar.
In shocking move, Japan adopts negative interest rate as deflation fight faltersThe Bank of Japan unexpectedly adopted a negative interest rate policy Friday, stunning investors with a move aimed at shielding the country's sluggish economy from volatile markets and slowing global growth.
The BOJ said it would use a three-tiered system to charge for excess reserves parked with the institution, an aggressive policy pioneered by the European Central Bank that penalizes banks for holding cash and encourages them to loan it out.
... [ snipped yada yada yada ] ...
And some folks *still* ridicule Andrew Jackson.
No, it doesn't. But Keynesianism and Monetarism have held sway so long, that hardly anyone knows anything else.The government's power to control the currency is now held as natural law. That money's quantity and value were once determined by market forces [i.e., the people] is becoming lost knowledge.
Exactamundo
Has been 20 yrs since I was in a casino- i confine myself to playing with fake money online these days
I'm home and the Panama Canal is a magnificent World Wonder! I can't wait until we Americans are “Great Again”. ; )
yep- also this from 2013- AMAZING how nobody mentioned this:
NICOSIA, Cyprus — Big depositors at Cyprus’ largest bank may be forced to accept losses of up to 60 percent, far more than initially estimated under the European rescue package to save the country from bankruptcy, officials said Saturday.
Deposits of more than 100,000 euros ($128,000) at the Bank of Cyprus will lose 37.5 percent in money that will be converted into bank shares, according to a central bank statement. In a second raid on these accounts, depositors also could lose up to 22.5 percent more, depending on what experts determine is needed to ...
Retirees - got royally screwed- European banks -IMF- America
ALL approved of this theft- is japan next?
“At the same time, we will be commanded to turn in all gold under threat of confiscation without compensation after 6 months, with special, armed recovery teams with sweeping powers of intrusion...”
All of whom have names and addresses and live in your community.
We’re pretty much there with credit cards, debit cards and direct deposit.
You are 100% correct.
I read that. I think I saw the link from Rapture Ready News. I was going to post it, but I didn’t need the arguments that were certain to come from people who choose not to believe that we have yet to see the real Stock Market crash. And argue they will.
“And argue they will”.
Yes, unfortunately. Wise decision Brother!
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