BoJ surprises as it unveils negative interest rate policy

The Bank of Japan shocked markets today after it adopted a negative interest rate policy to spur lending and hit its two-per cent inflation target as the government struggles to kickstart the world's number three economy.
The decision to unleash a new weapon in the central bank's war on deflation sent the yen plunging and sent the Nikkei 225 stock index soaring more than three percent as investors welcomed the move.
And in a stark acknowledgement of the huge job they have in ending a years-long fight to reinvigorate the economy, bank policymakers also cut their inflation forecasts and pushed back the timeline for reaching their two per cent goal.

"The two percent target is now totally out of reach," Taro Saito, economist at NLI Research Institute, said before the policy announcement.
They also warned over the negative impact of the economic crisis gripping key trading partner China, a crucial driver of global growth but which is operating at levels not seen in a quarter of a century.
The decision to slash borrowing costs to below zero means banks pay to park their cash in the BoJ, giving them an incentive to boost lending, which in turn should help fuel the economy.

A similar policy was adopted by the European Central Bank in 2014, the first time by a major central bank.

Friday's announcement is the latest throw of the dice by authorities as Prime Minister Shinzo Abe's big-spending, easy money policy -- dubbed "Abenomics" -- struggles to gain traction after two years.
Data earlier Friday painted a worrying picture of the economic malaise, with inflation at a well-below-target 0.5 percent last year as officials struggle to convince cautious firms to usher in big wage hikes to stir spending and drive up prices.
Also, spending by households in December fell 4.4 percent from a year ago and monthly industrial production contracted 1.4 per cent.
"Today's activity data were disappointing and suggest that Japan's economy barely grew last quarter," Marcel Thieliant from research house Capital Economics said in a commentary.

Japan's unemployment rate was steady at 3.3 per cent.
The economy grew a stronger-than-expected 0.3 per cent in July-September, after initial estimates had shown a contraction. Fourth-quarter data is due next month.
But a lacklustre global economy, marked by the slowdown in China and weakness in emerging markets, is posing challenges to the recovery.