What the Policy Aims to Do
The Bank of Japan introduced a negative interest rate policy in 2016, applying a negative rate to a portion of the current account deposits that financial institutions hold at the Bank of Japan. The aim was to encourage financial institutions to lend and invest their funds more actively in the market, thereby pushing down the overall level of interest rates in the economy.
Relationship to the Markets
A negative interest rate policy is expected to push down interest rates broadly, and there is a view that this makes risk assets such as stocks relatively more attractive. At the same time, concerns about narrower interest margins at financial institutions can weigh on bank stocks and others. The effect of the policy differs by industry, and its impact on stock prices cannot be determined uniformly.