Some Bank of Japan policymakers warned in March of "adverse effects" of negative rates, citing anxiety among financial institutions and depositors, meeting minutes showed Monday.
After the minus rate policy was adopted in late January, these members said it had become difficult for market players to understand the central bank's monetary easing policy, markets were further destabilized and excessive expectations for additional easing were created, according to the minutes of the March 14-15 meeting.
A few of these members added that the new policy "had not necessarily exerted its intended effects" of portfolio rebalancing, in which banks would be forced to find out riskier lending opportunities and assets to compensate for losses on interest rate margins. Alternative assets in the domestic market were limited, they said.
Some members defended the negative rate policy, arguing that the yen's appreciation and subsequent falls in Tokyo stocks were not attributable to the policy but to "the overly heightened risk aversion of investors worldwide," adding that the positive effects of lower interest rates will spread steadily as global markets regain their calmness.
The policy has been unpopular mainly among financial institutions, whose profits may be hurt by lower rates.
A few members warned that the policy risks impairing banks' functions as financial intermediaries and that their excessive risk-taking will lead to an accumulation of financial imbalances.
"Even more emphasis should be placed on financial system stability," one of these members said.
On inflation, which remains far from reaching the BOJ's 2 percent target, some members said consumer prices will not rise as fast as previously projected amid weakness in the economy.
Consumer prices, excluding volatile fresh food prices, fell 0.3 percent in March from a year earlier for the first decline in five months due to lower energy prices.
