Paying the bank interest to hold your deposits? What gives?

According to some analysts, the BOJ’s surprise easing was aimed partly at forestalling the yen’s appreciation after the currency strengthened to its strongest in a year last month and the dollar touched 115.97 yen, its weakest since January 2015.

The Bank of Japan’s governor had previously said he wouldn’t resort to this tactic.

While many investors had anticipated an expansion of the BOJ’s asset-purchase program this year, few expected Japan to join the European Central Bank and the central banks of Sweden, Denmark and Switzerland in negative territory on Friday.

“Concerns had been mounting that the BoJ was increasingly tapped out in its ability to ease monetary policy any further, and today’s five-four decision shows how bitter the divide between hawks and doves is”, said Angus Nicholson, a market analyst at IG Ltd in Melbourne.

El-Erian said if the dollar strengthens another 5-10 percent, “the Fed will start worrying”. “That’s the big tragedy – the system is capable of growing much faster but it’s being held back”.

“It was a surprise to most market players who thought negative interest rates would be a last resort”, said Koichi Fujishiro, senior economist at Dai-ichi Life Research Institute.

The “three arrow” programme included beating deflation by pumping money into the economy and implementing structural changes to make Japanese companies more attractive to shareholders – including better corporate governance and dividend policies.

While Japan’s central bank’s move is seen as a baby step – just a small proportion of deposits will be affected – it does mark a major shift. For one, the Bank of Japan (BoJ) cut its interest rates down to negative percent.

“Stock markets have reacted positively to the announcement and taken it as a clear sign that central banks are still willing to support markets”.

The benchmark Topix index closed 2.9 percent higher. Of course, in a way, negative rates or something similar have been in place at regular banks because there are things like ATM fees, service fees, and so on that tax your money. USA and European shares rose by approximately two percent, while the all-country world stock index (MSCI) gained 1.73%. A barrel of Brent crude fell below $30 to reach its lowest price for more than 12 years.

By doing so, the bank is hedging that commercial banks will be further incentivized to lend to businesses to promote widespread investment and growth, and put the bank back on track to hit its 2-percent inflation target, although the timeframe for this has once again been pushed back.

“The BOJ chose to adopt negative interest rates…to forestall such risks from materialising”.

Abe suffered a blow Thursday after a key architect of his growth plan, economy minister Akira Amari, resigned over graft allegations.

When rates are cut below zero, this effectively means institutions are charged to keep deposits at a central bank.