The Bank of Japan has surprised investors by lowering its interest rates to spur banks to lend amid a weakening economy.
The benchmark rate is now at -0.1 per cent meaning commercial banks will be charged by the central bank for some deposits. This will start on 16 February.
The central bank, led by Haruhiko Kuroda, also said it will push the rate even lower “if judged as necessary”.
However, the decision to introduce negative rates was not unanimous, with five policy board members voting in favor against four opposing the move.
In its economic outlook, the BoJ said although Japan’s economy continues to recover “moderately”, uncertainties over developments in emerging markets and China will remain.
It said: “Global financial markets have been volatile against the backdrop of the further decline in crude oil prices and uncertainty such as over future developments in emerging and commodity-exporting economies, particularly the Chinese economy.
“For these reasons, there is an increasing risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively affected.”