The recent move by the Bank of Japan to institute a negative deposit rate prompts the question as to its implications for other central banks, including the European Central Bank.
The ECB last eased policy in December when it cut its own deposit rate for banks from -0.2% to -0.3% and extended its asset purchase program. It disappointed markets, which had been led by comments from ECB President Mario Draghi to expect a larger cut in the deposit rate and for a faster pace of asset purchases. As a result of the disappointment, financial markets tightened monetary conditions. The effective exchange rate of the euro has appreciated by almost 5% since just before the ECB meeting, for example.
