Is the world heading toward a zero rate policy? This question is being asked by hundreds of economists and businessmen.  As evidence of deep recession is unfolding, bankers and economists are predicting that UK interest rates can hit zero any time now. The Bank of Japan’s decision to lower its key policy rate to 0.10 percent from 0.30 percent followed by US Federal Reserve Bank’s dramatic move is more proof to that fact that world is heading toward a global flat zero interest rate.

The Bank of Japan’s policy board voted 7-1 to cut the uncollateralized overnight call rate target from 0.3 percent. It was the second cut in less than two months. Japan’s interest rates have gone lower — they were effectively at zero from 2001 to 2006. TOMOKO A. HOSAKA of AFP reports

“The BOJ is in a similar situation to the Fed — the policy rate is down to a critical point, and policy conduct will inevitably shift to full-blooded quantitative easing,” said Tetsufumi Yamakawa, chief Japan economist for Goldman Sachs.

Economists, as well as the central bank, have generally concluded in the years since then that the policy helped money markets but had limited impact on the real economy.

As far as market reaction is concerned, Asian stocks were mixed on Friday.  Japan’s central bank cited many reasons for the rate cut. Some of them are the harsh impact of tumbling exports, weakening domestic demand and job losses.

“Under these circumstances economic conditions have been deteriorating and are likely to increase in severity for the immediate future,” the bank said in a statement.

In the U.S. Thursday, markets lost ground amid more downbeat economic news and worries about the rating outlook of industrial powerhouse General Electric Co.

The Dow fell 219.35, or 2.5 percent, to 8,604.99 and the Standard & Poor’s 500 index fell 19.14, or 2.1 percent, to 885.28. Futures suggested Wall Street would open lower on Friday with Dow futures down 49 points, or 0.6 percent, at 8,688 and S&P500 futures off 6.2 points, or 0.7 percent, at 886.300. More here

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