The Bank of Japan surprised the market by cutting their benchmark interest rate below zero following the conclusion of their 2-day monetary policy meeting Friday. The monetary policy officials voted 5-4 on their decision to cut the interest rate to -0.1% on commercial banks in excess of required reserves from 0.1%. The BOJ kept its monetary base on bond purchases unchanged at an annual pace of 80 trillion yen. However, the central bank emphasized that the BOJ will cut the rates further into negative territory if judged necessary. (3:30 GMT)
The BOJ also lowered its core inflation forecast for the coming fiscal year in April to 0.8% from 1.4% projected 3 months ago.
The yen fell sharply against the major currencies after a knee jerk reaction. The USDJPY rate rose from 118.40 to 121.40 ( 300 pips), while EURJPY rose to 132.28 from 129.00 ( 328 pips). In Europe, the rates remained firm for USDJPY at the 120.80 level while EURJPY trades at the 131.60 territory.
Stocks soared on the BOJ news. Nikkei closed 2.80% to 17,518 ( 476 points), China CSI 300 Index closed 3.24% to 2,946 ( 92 points), in Europe, Euro Stoxx 1.14%, DAX 0.99%, FTSE 0.86% as of 9:20 GMT. The Japanese JGB 5 year yields fell to -0.8%.