FX.co ★ The Bank of Japan unexpectedly cuts interest rates

The Bank of Japan introduced new benchmark interest rate effective from February 16. According to the bank’s official statement, the interest rate can be cut even further into negative territory if judged as necessary.
At the same time, the regulator is set to adopt a three-tier system when introducing the negative interest rate. The first tier, or the Basic Balance, means that the interest rate for the existing balances on current accounts will remain at 0.1 percent.
Under the second tier, or the Macro Add-on Balance, a zero rate will be applied to the institutional reserves kept at the Bank of Japan, and also the reserves related to various lending support programs.
The third tier is called the Policy-Rate Balance. In this case, a rate of minus 0.1 percent will be applied to any reserves not included in the first two tiers.
Following the interest rate reduction, the yen drifted lower on the London Stock Exchange. Japan’s national currency fell by 2.6 percent to trade as low as 131.45 against the euro.