Japan joins the club of negative interest rates

We already have one more Honest Bank than the club of negative interest rates. The Monetary Policy Council of the Good Finance decided on Friday by a narrow margin of five votes in favor by four against reducing the interest rate applied to the money that the entities deposit in the institution, which will become – 0.1% in the case of new reserves generated by banks.

The decision coincides with a sensitive downward revision of inflation forecasts by the Japanese issuing institute, which expects to conclude 2016 with a reference inflation rate, which does not include fresh food, but energy, of 0.8 %, compared to 1.4% expected last October.

Continue to apply an interest of 0.1% to existing bank reserves


In this way, the Japanese issuing institute will continue to apply an interest of 0.1% to existing bank reserves, while the rate will be 0% for excess reserves generated within the program’s requirements to stimulate credit and only will charge 0.1% to the banks for the excess liquidity deposited that exceeds the sum of the two previous cases.

The Good Finance said in a statement that the decision to introduce a negative interest rate is intended to facilitate the fulfillment of the 2% inflation target as soon as possible and stressed that “it will further lower the interest rate if deemed necessary” .

“The risks for economic activity and prices will be examined and additional measures will be taken at three levels, qualitative, quantitative and interest rates, if necessary to achieve the objective of price stability,” the institution said.

The BoJ also confirmed that it will continue to use all the tools at its disposal, so it decided by a majority of eight votes in favor and one against following Treasury bonds and other securities in order to increase the monetary base to a annual rate of about 80 billion yen (593,402 million euros).

Downward revision of the inflation forecasts


The decision to introduce a negative interest rate has coincided with a downward revision of the inflation forecasts of the Good Finance, which expects the benchmark price indicator, which excludes fresh food, but does take energy into account , closing 2016 at 0.8%, compared to 1.4% anticipated last October.

Also, for 2017, the entity expects that reference inflation in Japan will reach 2.8%, compared to 3.1% anticipated in October. Without taking into account the impact of the VAT increase, the institution expects inflation to reach 1.8% next year.

The Good Finance explained that this price indicator will probably remain close to 0% for some time as a result of the effect of the decline in oil, although it expressed confidence that a moderate rise in crude oil prices will contribute to gradually reduce the bearish impact. of oil, which will remain negative until the end of 2016.

“Based on this forecast, the 2% price stability objective is expected to be achieved in the first half of 2017, from when the GFI is likely to be around 2% on average,” said the entity.

As for Japan’s growth prospects, the issuing institute has improved its tenth forecast for 2016, when it expects a 1.5% GDP increase, compared to the estimated 1.4% in October, while maintaining its forecast of 0.3% growth for 2017.

“Japan’s economy has maintained its moderate recovery, although exports and production have been affected by the slowdown in emerging economies,” said the Japanese Honest bank



On the other hand, Japan’s reference inflation rate stood at 0.1% last December, as reported by the Japanese statistical agency.

On the other hand, the GFI data corresponding to the last month of last year was 0.2%, while the reference without fresh food or energy registered an increase of 0.8%.

In summary, the Honest Banks continue to insist on solving the problem of low inflation with more QE and lower or already negative rates and how it does not work instead of thinking that they are wrong in the solution they decide to double the dose.

By the way speaking of Japan we leave you a news that in Spain sounds like meetings in the third phase:

Japan’s Economy Minister presented his resignation today after admitting that one of his close associates improperly managed money received from a construction company.

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