Tuesday, October 05, 2010

The currency war continues; Bank of Japan cuts its rate to near zero

TOKYO — In a surprise move, Japan’s central bank lowered its benchmark interest rate to a range of 0 percent to 0.1 percent Tuesday, a tiny change from its previous target of 0.1 percent but a symbolic slide into an age of zero interest rates.

The Bank of Japan also said it would set up a temporary 5 trillion yen, or $60 billion, fund to buy Japanese government bonds, commercial paper and other asset-backed securities amid concerns over weakening growth in the world’s third-largest economy.

With the interest rate cut, the central bank effectively reintroduces a zero-interest rate policy for the first time since July 2006. The decision underscores concerns that a strong yen and persistent deflation threaten the country’s fragile economic recovery.

The dollar rose against the yen on the announcement, climbing 0.7 percent on the day to 83.90 yen from about 83.55 yen before the decision.
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