JAPAN’S NEW ZIRP

BANK OF JAPAN CUTS RATES TO AS LOW AS ZERO PERCENT

Hiroko Tabuchi

The New York Times, October 5, 2010

TOKYO — In a surprise move Tuesday, the Japanese central bank lowered its benchmark interest rate to a range of 0 percent to 0.1 percent, a tiny change from its previous target of 0.1 percent but a significant move back into an age of zero interest rates.

The Bank of Japan also said it would set up a fund of ¥5 trillion, or $60 billion, to buy Japanese government bonds, commercial paper and other asset-backed securities amid concerns about weakening growth in the economy, the world’s third-largest, after the United States and China. The bank also kept its credit facility for banks at ¥30 trillion.

With the interest rate cut, a bid to bolster lending in the moribund Japanese economy, the central bank effectively reintroduces a policy of a zero interest rate for the first time since July 2006. The decision underscores concerns that a strong yen and persistent deflation threaten Japan’s economic recovery.

In a statement, the bank confirmed that it would maintain its “virtually zero interest rate policy” until it achieved “medium- to long-term price stability”— or an end to deflation.

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