BOJ negative rate seen as top tool by analysts, with cut by July


The Bank of Japan’s new negative rate is the most likely tool for any expansion of stimulus, with a majority of economists in a survey forecasting additional easing by July.

Eighty percent of analysts see a further cut to the negative rate as the most likely action for Gov. Haruhiko Kuroda, and almost 90 percent see more easing coming at one of the four meetings through the end of July. Only five of 40 economists expect additional stimulus at the meeting ending Tuesday, according to the survey by Bloomberg.

The bank shocked markets in January with the negative rate policy, which means it charges financial institutions on some of their reserves at the BOJ. The effects of that decision are still being felt — yields on more than 70 percent of government debt are now below zero, money market funds stopped accepting investments, and bank shares have tumbled on profit concerns.

“March easing is unlikely in my opinion since money markets are still trying to find an equilibrium,” Izumi Devalier, an economist at HSBC Holdings PLC, wrote in the survey, conducted March 8-10. “Our base case is for July easing precisely because we thought the BOJ would want a few months to judge the impact of negative rates on markets, especially money markets.”

The central bank has faced a backlash of criticism and confusion since the January meeting, with lawmakers summoning Kuroda a record number of times to answer questions on the policy. In a report from earlier this month the Bank for International Settlements warned of “great uncertainty” if worldwide rates stay negative for a prolonged period.

Kuroda has indicated little appetite for stimulus at back-to-back meetings, saying he wants to see the impact of his “powerful” policy on the economy. The BOJ will choose appropriate policy combinations if it has to consider further stimulus, with options in quality, quantity and in negative rates, Kuroda said in the Diet on Thursday.

The bank will expand stimulus, but not next week, Etsuro Honda, an aide to Prime Minister Shinzo Abe, said Thursday. “The BOJ is carefully watching the reaction from market participants” to its January announcement, he said.

Market volatility has eased and the Topix index is rising after dropping to the lowest level since October 2014 in mid-February, although the yen has strengthened almost 6 percent against the dollar this year. Barclays PLC and JPMorgan Chase & Co. had been expecting further easing this month, but pushed back that forecast to July, citing calmer markets after the earlier turmoil.

Even so, the effects of the BOJ’s new policy are still working themselves out. Japan’s benchmark 10-year bond yields dropped to a record low of a minus 0.1 percent on Tuesday, and the Ministry of Finance has canceled planned sales of 10-year fixed rate notes aimed at individual investors from early February.

The BOJ’s key price gauge, which it uses to measure its progress toward the goal of 2 percent inflation, has been hovering near zero percent since May, held down by the collapse in oil prices and the sluggish economy. The bank cited that weakness when it announced the new policy.

“The bank will assess how the effects of the decline in interest rates permeate and spread through the real economy,” Kuroda said Monday. Days before, Hiroshi Nakaso, his deputy and a former head of central bank’s markets section, said that “some more time is needed for financial markets to digest the policy.”