Bank of Japan Goes Negative, "Strong Dollar" Surges
In a surprise move, the Bank of Japan announced last night that it would employ negative interest rate policy for the first time in its history. The formula for this is rather complex . It's based on interest for bank reserves held with the central bank, and it seems that only new deposits will be charged the negative rate. We're not talking about a straightforward single rate on overnight lending, as is the case for say, the federal funds rate in the US, or the overnight rate in Canada. Naturally, the dollar has surged compared to the yen, and the dollar continues to look like a safe haven by comparison. But only by comparison , of course, since central banks, partly due to collaboration , and partly due to internal politics, are engaged in a race to the bottom. Japan has long been leading the race to the bottom, however, since its overnight rate (the Mutan rate) has been under one percent since about 1996: It's been pretty close to zero most of the time since...