The Bank of Japan decided to cut interest rates below zero at January meeting which strongly surprised markets. Current benchmark rate is set at -0,1%. BoJ has adopted a three-tier system on financial institutions where positive rates will apply to existing current account balances, zero rates will be related to required reserves, whereas the negative rate will apply to outstanding balance in excess of the mentioned amounts. What is more, BoJ’s authorities indicated that rates could be cut further into negative territory as necessary. Kuroda said also that adjusting interest rates does not mean that Bank cannot buy more bonds.
Yen was heavily sold versus major currencies and USDJPY rose as much as 2,0% reaching 121,00. Market sentiment was restored and stocks jumped thanks to additional loosening from BoJ. Nikkei 225 grew by 2,8% showing that BoJ’s action today was a positive surprise for the market. Indices could capitalize on the positive sentiment and recoup some of the losses from the beginning of the year.