The Bank of Japan surprised the market by pushing its interest rates into negative territory at today’s monetary policy meeting. As one could expect, such decision led to a slump of the Japanese yen against other most-traded currencies.
The BoJ announced today that it cut its main interest rate from 0.1 percent to -0.1 percent. Specifically, the bank will use the three-tier system (similar to the system used by other major central banks with the negative interest rates policy, like the ones in Switzerland, Sweden and Denmark) where some deposits will still have a 0.1 percent interest, some will have zero interest while others will have to pay 0.1 percent (a negative interest) starting from February 16. The decision was not easy as the number of votes for implementing negative rates and the number of votes for leaving monetary policy unchanged were almost the same.
Additionally, the central bank admitted that inflation would not reach the target 2 percent as fast as it has been predicted. In fact, the BoJ revised its inflation forecast for 2016 down, from 1.4 percent to 0.8 percent.
USD/JPY surged 2.1 percent from 118.80 to 121.27 as of 14:39 GMT today. EUR/JPY rallied 1.3 percent from 129.84 to 131.71. GBP/JPY gained 1.3 percent from 170.60 to 172.89.
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