Why BOJ’s negative rate, not really a negative rate?

Bank of Japan's (BOJ) negative rate is more symbolic and theoretical than actual realty. While, we, at FxWirePro, joined bandwagon of analysts and news service providers on Friday, highlighting Bank of Japan's (BOJ) first ever negative rates but a detailed analysis reveals such negative rates unlikely to change much in reality.

Here's why 

• Negative rates, which BOJ announced to be charged on excess reserve in reality won't impose negative rates on the reserve.
• BOJ's negative rate window is a three tier system, which applies three different rates to excess reserve.
• Bank would be paying +0.1% on average outstanding current account balance held throughout 2015.
• It will be paying zero interest on current account balances related to bank's required reserves and BOJ's provision of credit through its loan support programs.
• It will charge -0.1% on additional current account balances going ahead.

As of now there are no balances in third category, so no negative rates and even if Banks park their excess reserve arising from BOJ's Qualitative and Quantitative Easing (QQE), largely more than 60% of it will still earn +0.1% and large portion would earn zero. There would be only few in the third category.

If all the proceeds from QQE, goes to reserve it would take about two year for overall earnings on those reserve to fall below zero.

So, in reality, Friday's move suggests, there would not only be negative rates on reserves in the near term, BOJ is most likely done with boosting QQE.

So what would be the fate of Yen?

Even with symbolic negative rates, Yen could remain low for the moment as BOJ might do more and innovative on the rates front.

Ultimately Yen's fate would rely more on Dollar and risk aversion in the market.

Yen is currently trading at 121.3 per Dollar.