Japan adopts negative interest rate in surprise move

In a surprise move, the Bank of Japan has introduced a negative interest rate to counter the ongoing economic slump.

The rate of -0.1% will mean that the central bank will in fact charge money for holding deposits.

The central bank hopes the easing of monetary policy will drive up inflation and boost economic growth.

It's a policy that usually only affects interbank lending and is not handed down to the average banking client.

The decision came after the bank wrapped up its first meeting of the year on Friday.

Earlier in the day, fresh economic data had again highlighted concerns over economic growth. The December core inflation rate was shown to be at 0.1% - far below the central bank's 2% target.

Why negative rates?

Japan is currently facing very low inflation, which means that people and companies tend to hold on to their money on the assumption that they can get more for it later in time.

So rather than spend or invest it, they will keep it in the bank.

Cutting the cost of borrowing is an incentive that should boost both domestic spending and business investment.

It is also aimed at driving inflation up, which is another incentive for people and businesses to spend rather than save.

On Friday, data also showed the country's industrial output dropped by 1.4% in December from the previous month - weaker than estimates had suggested.

It was the second month of decline, underscoring that flagging external as well as domestic demand was weighing on Japan's economy.  http://www.bbc.com/news