(Bloomberg) — The Bank of Japan pushed interest rates below zero Friday, after years of keeping them at the lower end of the positive range. Bank of Japan Governor Haruhiko Kuroda is matching European Central Bank President Mario Draghi in pursuing negative interest rates, and even pulling ahead when it comes to driving longer-term bond yields lower.
The BOJ will pay an interest rate of -0.1% on current accounts held by financial institutions. Policy makers also signaled their willingness to do more, saying they would “cut interest rates further into negative territory if judged as necessary.”
The negative rates will be imposed on reserves worth about 10 trillion to 30 trillion yen initially and will apply only to new reserves that financial institutions deposit at the central bank, according to people familiar with knowledge of the matter. The change will take effect on Feb. 16.
Japan’s 10 year sovereign yield fell 12.5 basis points to 0.09%. That is less that 1/10th of 1% on 10Y sovereign debt, currently the lowest 10 year sovereign yield in the world after Switzerland.
The Japanese sovereign yield curve is now negative at maturities of 8 years and less.
A problem facing the Japanese economy is that the lending in Japan is DROPPING (as indicated by the white line).
To illustrate Japan’s sagging economy, their home prices peaked in 1991 and have been falling ever since despite repression of the Bank of Japan’s target rate.
Note that as of 04/04/2013, the BOJ has shifted its monetary policy focus to a targeted monetary base via Japanese government bond (JGB) purchases.
The Japanese currency, the Yen, popped on the announcement.
So, Draghi is emulating the ECB’s Mario Draghi in terms of negative interest rates. He got it from his (spiritual) daddy. I would have use “My Kuroda,” but that is too obvious.