The Japanese central bank has surprised many with its lowering of the interest rate benchmark to between 0 and .1 percent, a symbolic shift back into the days of the zero percent interest rates.
The Bank of Japan also announced that it was setting up a 5 trillion yen fund to purchase bonds from the Japanese government as well as commercial papers and securities. These measures come amid concerns that the weakening growth in the world’s third biggest economy may falter still further. The bank was also keeping bank credit facilities at 30 trillion yen.
The zero percent interest rate has not been seen since 2006, but its reintroduction into the Japanese economy is a bid to shore up lending in the dilapidated Japanese economy. The decision to reintroduce the zero interest rate policy only serves to underscore concerns about the strength of the yen and the persistent deflation which have plagued Japan’s economy of late.
While analysts agree that the bank has done all that it can at this point in economic history, it has also somewhat come to the end of its options; there is not much left that the bank can do to help bolster the flagging economy. The bank has also hinted that it will considered expanding the 5 trillion yen asset-buying fund if it proves to be successful at helping the economy.
The Bank of Japan has come under increasing pressure from Japan’s government to take more drastic measures in the economy, and the vote to lower the interest rate at this time was unanimously approved.