Side effects possible if negative rates deepen, ex-BOJ official says


The Bank of Japan’s new negative interest rate policy may bring “side effects” if the central bank further pushes rates into the red, a former BOJ chief economist warns.

Hideo Hayakawa, who was an executive director at the BOJ before he retired in 2013, said on a NHK television discussion show Sunday that people will not see negative rates at the current minus 0.1 percent level. Even so, he said there were cases in Europe where negative rates have led to individuals being charged on their deposits.

The BOJ on Feb. 16 started charging 0.1 percent on a portion of the excess funds that financial institutions have in its accounts. When it introduced the policy at its January meeting, the BOJ said it would cut the rate further “if judged as necessary,” prompting fears that individuals may face charges on money kept in bank deposit accounts.

“In European countries where negative rates are close to minus 1 percent, smaller financial institutions are charging a small handling fee for small-size deposit accounts,” said Hayakawa, who is now a senior executive fellow at the Fujitsu Research Institute.

Japan has joined central banks in the euro area, Switzerland, Denmark and Sweden in introducing a negative rate policy, which is intended to spur bank lending by penalizing them for holding reserves at the central bank.

Speaking in the Diet on Monday, BOJ Gov. Haruhiko Kuroda said that while there have been various reactions to the negative-rate policy, he expects it will be positive for the economy and lead to an increase in lending.

Since the BOJ’s Jan. 29 move, the benchmark Topix index has plunged more than 7 percent and the yen has strengthened 5.5 percent against the dollar. Prime Minister Shinzo Abe on Saturday defended the negative-rate policy, saying it was not the cause of the current market turmoil. He blamed the Chinese economy, oil prices and the Federal Reserve’s rate hike and added that the rates individuals earn on deposits would not turn negative.

Sixty-one percent of respondents in an Asahi newspaper poll published Feb. 16 said the minus-rate policy would not buoy the economy, while only 13 percent said it would. Twenty-seven percent of economists in a Bloomberg survey say negative rates will help Kuroda reach his goal of boosting feeble inflation, and 42 percent say the policy is succeeding in the euro area.

  • solodoctor

    How interesting that no one so far is directing their attention and criticisms where these should go: at PM Abe for his failure to really introduce any substantial fiscal stimuli, changes in tax policies, or structural reforms aimed at getting the economy to grow. His so called Abenomics has been pretty much all talk and very little concrete action. Instead, he has relied on Kuroda/the BOJ to do almost all of the work. By itself monetary policy/negative interest rates cannot lead the way. Only Abe can. Will he?!?