Zero interest rates return to Japan
TOKYO — Japan’s central bank cut its key interest rate to virtually zero in a surprise move yesterday and is looking to set up a $60 billion fund to buy government bonds and other assets as it tries to inject life into a faltering economy.
The Bank of Japan’s nine-member policy board voted unanimously to set its overnight call rate target to a range of zero to 0.1 percent, returning to zero rates for the first time in more than four years.
The decision underscores growing worries about the Japanese economy, which is being battered by a strong yen and persistently falling prices. The central bank had left rates untouched since December 2008 when it lowered the target to 0.1 percent. It also suggests Japan is taking a page from US Federal Reserve chairman Ben Bernanke’s playbook. The move closely resembles a move by the Fed to cut its key interest rate to near zero and then turn to other unconventional methods, such as buying securities, to juice up economic growth.
In Japan, recent economic indicators point toward deteriorating exports, industrial production, and corporate sentiment. Authorities intervened in currency markets last month to weaken the yen, but the impact was short-lived. Lawmakers repeatedly called on the Bank of Japan for more help.
“Although Japan’s economy still shows signs of a moderate recovery, the pace of recovery is slowing down partly due to the slowdown in overseas economies and the effects of the yen’s appreciation on business sentiment,’’ the central bank said in its statement.
The rate cut is the first step of a three-pronged approach outlined by the central bank to answer critics who had disparaged previous efforts as inadequate. It did nothing at its last meeting in early September, which followed an emergency meeting in late August when it expanded a low-interest credit program.
“It’s a good move,’’ said Kyohei Morita, chief economist at Barclays Capital Japan. “All that they announced today is something that is beyond my expectations.’’
In the United States, Bernanke sent a stronger signal on Monday that the Fed is readying another program to buy government debt, which is formally known as quantitative easing.
The Fed’s key rate has been sitting at a record low near zero since December 2008. After that, the Fed started buying mortgages securities and government debt to force down rates on a variety of consumer and business loans. It also rolled out other programs to make loans more available and cheaper. Those aid programs were shut down after the crisis.