Japan’s central bank caused a stir on Tuesday when it lowered the benchmark interest rate from the previous target of 0.1% to a new rate of 0%–0.1%. The change is small; its significance is mighty.
Also causing a major stir is the Bank of Japan’s statement, as reported in The New York Times, that it would set up a fund of 5 trillion yen ($60 billion) to buy treasuries, commercial paper and other asset-backed securities in its effort to shore up its weakening economic growth.
The measure is seen as a way to combat deflation, as well; the interest rate has not been at zero since 2006, and the worry is that deflation coupled with a strong yen will derail recovery of the Japanese economy. It’s perceived as a strong step, contrary to earlier incremental decisions that, according to Hirokata Kusaba, an economist at Tokyo’s Mizuho Research Institute, “sparked market disillusionment.”
In the U.S., positive data from the Institute for Supply Management (ISM) regarding the nation’s services sector was better than expected, as the non-manufacturing index saw gains of 1.7% in September, coming in at 53.2%.