The Bank of Japan (BoJ) has released a summary of opinions expressed by the 9 board members at the 28th - 29th January policy meeting. At the January meeting the BoJ took the market by surprise as they cut a key interest rate to below zero, in what some see as a bold move in its continued efforts to overcome deflation. The interest rate on excess reserves was taken down to -0.1%. Of the 42 economists surveyed by Bloomberg, only 6 predicted the move. Interest rates have not been above 0.5% this century, a long way from the 8% seen in the 1980’s. As expected the BoJ left QE at a rate of JPY 80bn a year.
However the decision was made by the narrowest of margins, 5-4. The minutes of the previous meeting show that those who voted against the move argued that pushing the interest rate into negative territory would have little effect on the economy. "Japan's economic activity and prices have maintained stable conditions, and the recent instability in financial markets has not been serious. At this moment, the bank does not need to implement additional monetary easing" one member said.
Of course the BoJ is not the first central bank to reduce an interest rate to below zero. The European Central Bank (ECB) did the selfsame thing in March 2014. This was also mentioned in the summary. One member was concerned that by adding interest rates to the fight against deflation, this would increase market's expectation of future cuts whilst also adding "I am concerned that the BOJ's introduction of a negative interest rate could lead to a competition with central banks in other countries, which already have adopted negative interest rates, to lower interest rates deeper into negative territory".
So, what has this move done for JGB’s? Well they are all trading on a negative yield out to the 9-year, and on the 10-year you get a massive 0.029% yield.