[NEW YORK] The yen weakened sharply on Friday amid reports that the Bank of Japan is mulling cutting the rates on some loans to banks into negative territory.
Such a move would support the banks' earnings but also serve as stimulus by possibly pushing more money into the economy.
The news sent the yen tumbling 2.1 per cent against the dollar and 1.5 per cent on the euro, reversing a trend that saw the Japanese currency hit its highest level against the dollar in 18 months last week.
The news came a week before the BoJ holds a policy meeting amid an economy that continues to lack traction and was hit by two deadly earthquakes on April 14.
The BoJ already has been charging banks for parking their excess funds at the central bank, and the possibility of it taking a step to pay banks to borrow from it would add another layer of stimulus.
"This would mean banks can receive money for borrowing from the Bank of Japan," said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management.
"It's a plus for bank profitability as it eases the burden from the BoJ's negative interest rates." The dollar, meanwhile, drifted higher against the euro, with the market waiting for any Federal Reserve announcements after its policy meeting next week.
The Fed is not expected to move its key rates but could spell out better its plans for increases.