By: Barbara Zigah
In a move that caught the global forex markets unaware, the Bank of Japan today, in a unanimous vote, announced a reduction in its lending rate to a mere sliver above zero percent. In addition to the near-zero interest rate, the Japanese central bank also announced the initiation of a new 5 trillion Yen fund (equivalent to $60 billion) to purchase government as well as corporate debt, all this in an effort to spur the sluggish Japanese economy.
The effect of the Bank of Japan’s move on the markets was quickly felt, with the Nikkei gaining nearly 1% immediately following the announcement, and closing 1.47% higher on the day. The Japanese Yen was trading against the U.S. Dollar at 83.99 Yen, before settling to 83.70 Yen.
Today’s move by the Bank of Japan was the first such move since December 2008, when it set the lending rate at .1%. The Japanese government has been putting significant pressure on the central bank to help with boost the economic recovery, and according to one analyst, this set of easing moves by the Bank of Japan has essentially left them with no additional options.
While Japan has seen some moderate recovery, over the second quarter, growth expanded only by 1.5% annualized; a notable decline from the previous quarter’s 5% expansion.