The basic parameter, alternated by the Bank of Japan to achieve its goals, is the discount rate value.
High rates slow down the consumer crediting growth rate and stimulate savings increase therefore leading to the economic growth retardation. The rates growth usually leads to the inflow of capital intocountry and national currency growth in the medium-term plan. However if the rates growth is not based on the fast economic growth, it may lead to stagnation and negative influence on exchange markets in the long-term plan.
In the beginning of 90’s of the 20th century, the Bank of Japandiscount rate value was 6% annually. Later on, as a result of significant home demand downfall and some other reasons, Japanese economy entered the deflation period i.e. price level fell, provided and specified by home demand downfall. In order to prevent these processes Japan maintains the “virtually zero interest rate “policy executed since the beginning of 21st century. This policy prompts the outpouring of money from various primary financial instruments to cash (it does not make sense to keep the money on the monetary and credit accounts, from the point of view ofinterest charges), what is supposed to stimulate products and services demand.
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The discount rate alteration decision causes one of the strongest market responses. The discount rate rise or the future plans signals will significantly support the Japanese currency.