OITA – A Bank of Japan Policy Board member urged banks Thursday to downsize in number and asset holdings to become more profitable, pointing to structural factors, rather than the BOJ’s easing policy, as being behind the deterioration in their profitability.
In a speech to business leaders in the city of Oita, Yutaka Harada brushed off criticism that low interest rates, part of the BOJ’s stimulus efforts, have eaten into the banks’ lending margins, saying the financial institutions in Japan suffer from the structural problem of “accumulating more deposits than they can lend.”
“Banks in Japan do not seem to be trying to reduce deposits, but instead are relying on riskier lending or investment,” he said.
“In capitalism and a market economy, firms need to switch from unprofitable to profitable business areas,” he said. “If banks release human resources and capital while making this shift, this will have a positive impact on Japan’s economy as a whole.”
Harada cautioned against raising interest rates, saying it “would lead to a decrease in the demand for loans, a decline in prices, an appreciation of the yen, an economic downturn, an increase in bankruptcies (raising banks’ credit costs), and so forth.”
“Therefore, raising interest rates would not solve the problem” faced by the banks, he added.
The policymaker said although “even now, achieving the (BOJ’s) inflation target of 2 percent seems to be a long way off,” he believes “the only way out is to maintain the current accommodative monetary policy in order to achieve sustained expansion of economic activity until we see increases in prices and interest rates.”
He said the BOJ’s bold monetary stimulus implemented since 2013 has clearly improved the nation’s economy, with the unemployment rate falling to its lowest level in nearly three decades and productivity increasing.
In October, the jobless rate was 2.4 percent. Harada welcomed the rise in the employment rate of those aged 65 or over, saying it has been “brought about by monetary easing” and “can be regarded as good news for Japan’s aging society.”