Bank of Japan introduces negative interest rate

In a surprise move, the Bank of Japan has introduced a negative interest rate.

The benchmark rate of -0.1% means that commercial banks will be charged by the central bank for some deposits.

It is designed to encourage them to use their reserves to lend to businesses in an attempt to counter Japan`s economic stagnation.

The charge does not directly apply to ordinary customers` accounts. The country is desperate to increase spending and investment.

One of the side effects of a moribund economy is falling prices - something that can send an economy into a downward spiral as customers hold off spending in the hope prices will fall yet lower.

Japan has been desperate to boost consumer spending for years. At one point it even issued shopping vouchers to stimulate demand.

The eurozone has negative interest rates, but this is a first for the third-largest economy.

It is a move that has been on the cards for Japan`s stagnating economy for well over 10 years.

The decision to go negative came after a narrow 5-4 vote at the Bank of Japan`s first meeting of the year on Friday.

"The BoJ will cut interest rates further into negative territory if judged as necessary," the Bank of Japan (BoJ) said, adding it would continue as long as needed to achieve an inflation target of 2%.

Some analysts have cast doubt over how effective the rate cut will be.