The Bank of Japan is stepping up its efforts to kick-start the country’s struggling economy by taking interest rates into negative territory.
The central bank announced Friday that it will introduce an interest rate of minus 0.1% and will go even lower if needed.
In theory, negative rates encourage consumers to save less and spend more. They can also weaken a country’s currency, helping exporters.
Investors responded positively to the Bank of Japan’s announcement Friday. Stocks rose and the country’s currency, the yen, fell against the dollar.
Financial markets’ turbulent start to 2016 has been particularly punishing for Japan. Prior to the central bank’s move, stocks had tanked around 10% since the start of the year, and the yen had strengthened.
The plunge in crude oil prices, meanwhile, has made it even harder for the Bank of Japan to hit its inflation target of 2%.
The central bank said the Japanese economy was in the midst of a moderate recovery, but it expressed concerns about plummeting oil prices and the uncertain outlook for emerging economies, especially China.
Japan has long struggled with deflation, and prices have been stagnating despite the central bank’s aggressive stimulus measures in recent years that include a massive bond-buying program.
The Bank of Japan’s announcement comes soon after closely watched statements from other major central banks amid the recent market turmoil.
Last week, European Central Bank President Mario Draghi gave stocks a lift by promising that the bank could pump out more money as early as March if necessary.
And on Wednesday, the U.S Federal Reserve said it was “monitoring global economic and financial developments.”
