Bank of Japan Negative Rates: Eight Years at Minus 0.1%

The Bank of Japan charged banks to hold money at it for eight years. The rate was minus 0.1%, set in January 2016 and dropped in March 2024.

It never applied to all of the money banks kept there. The Bank split each institution's account into three tiers and charged the negative rate on the top one alone. This guide sets out what the policy was, how the tiers worked, what the Bank said it was for and how it ended.

Minus 0.1%, on one slice of each bank's account.

Commercial banks keep money at the central bank. That balance normally earns interest. A negative rate reverses it, so the bank holding the money pays for the privilege.

Source: Bank of Japan, decision of 29 January 2016; YX Insights

The table gives the three tiers as the Bank set them out. The Basic Balance, sized on each institution's 2015 average, earned plus 0.1%. The Macro Add-on Balance earned nothing. Only the Policy-Rate Balance, the part above the other two, paid minus 0.1%.

The Bank put that tier at "about 10 trillion yen on average" in July 2018.

A footnote to the January 2016 decision gave the reason for splitting the account. A multiple-tier system, it wrote, is meant "to prevent an excessive decrease in financial institutions' earnings". Such a fall in earnings "could weaken their functions as financial intermediaries".

So the Bank charged only the balance above the other two tiers.

Pushing down the whole structure of interest rates, including the long end.

The January 2016 statement is explicit about the chain. The Bank would "lower the short end of the yield curve by slashing its deposit rate on current accounts into negative territory".

It would then "exert further downward pressure on interest rates across the entire yield curve", by buying Japanese government bonds on a large scale. A JGB is one of those bonds, issued by the Japanese government to cover its own spending.

Eight months later it added a second instrument. From 21 September 2016 the Bank would buy government bonds "so that 10-year JGB yields will remain more or less at the current level (around zero percent)". That is yield curve control. The two policies ran together until both ended on the same day.

Chart 1 shows the 10-year yield across the whole period. It was 0.229% the day before the decision and 0.104% on the day. It first closed below zero on 9 February 2016 and reached its lowest close, minus 0.297%, that July. It closed below zero on 453 days in all.

The Bank's own assessment of the combination came later. Negative rates, it wrote in December 2024, had "in combination with large-scale JGB purchases, further strengthened downward pressure on nominal interest rates".

For four and a half years there was no number at all. The Bank named a level, not a band.

The September 2016 statement said "around zero percent" and stopped there. The July 2018 statement added only that yields "may move upward and downward to some extent". No figure appears in either.

The first numeric band came on 19 March 2021: "between around plus and minus 0.25 percent from the target level". It widened to plus and minus 0.5 percentage points in December 2022. In July 2023 the Bank kept that band but called it a set of "references, not… rigid limits". It stood ready to buy at 1.0 percent.

Chart 2 marks each of those steps against the yield. The stated ceiling rose twice in the two years and four months after the first number appeared.

The yield never closed at or above 1.0% while any of this was in force. Its highest close was 0.959%, on 1 November 2023.

Our JGB guide covers the bond market those purchases were acting on.

On 19 March 2024, with a judgement about wages.

The Bank said the framework and the negative rate "have fulfilled their roles". Its stated reason was a judgement about pay. The Policy Board had "assessed the virtuous cycle between wages and prices". It judged it had come in sight that the 2% target would be achieved "in a sustainable and stable manner".

The replacement was a conventional guideline: the overnight call rate "to remain at around 0 to 0.1 percent", effective 21 March 2024. Current account balances other than required reserves now earn plus 0.1%.

Chart 3 shows the policy rate since. Five increases took it from that range to 1.25%, set on 18 September 2026 and effective on 24 September.

The Bank announces a decision on one date and applies it on another, between one and six days later. The 1.25% rate was decided on 18 September and took effect on 24 September.

The policy ran for eight years, one month and nineteen days from decision to decision. Yield curve control ran for seven years, five months and twenty-seven days.

The 10-year yield closed at 0.774% on 18 March 2024, the day before the exit. It closed at 3.057% on 30 September 2026.

The policy itself was narrow: minus 0.1%, on the top tier of each bank's account, for eight years.

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From 16 February 2016 to 21 March 2024, which is eight years and one month in force. The decision was taken on 29 January 2016 by a 5 to 4 vote. The decision to end it came on 19 March 2024, eight years, one month and nineteen days later.

Minus 0.1%. It applied only to the Policy-Rate Balance, the top tier of each bank's current account at the Bank of Japan. The Basic Balance earned plus 0.1% and the Macro Add-on Balance earned nothing. The Bank put the top tier at about 10 trillion yen on average in July 2018.

It said the policy had "fulfilled" its role. The Policy Board judged the 2% inflation target had come in sight "in a sustainable and stable manner", citing a virtuous cycle between wages and prices. The decision was taken on 19 March 2024 and took effect on 21 March.

1.25%, as a guideline for the uncollateralized overnight call rate. It was set on 18 September 2026 by a 7 to 2 vote and took effect on 24 September 2026. Five increases have taken the rate up from the 0 to 0.1% range that replaced the negative rate in March 2024.

DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.