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Bank of Japan officials are considering ways to communicate that the bank has room to cut its interest rate further below zero, according to people familiar with the matter.

With a month still to go before the central bank’s policy review, no conclusions have been reached, but officials see a need to make it clearer that reducing rates is a live option while considering ways to minimize the side effects of such a move, the people said.

The bank doesn’t plan to cut from the current level of -0.1% for now, but it should ensure that it can in case the policy becomes necessary in a crisis, the people said.

The officials acknowledged there is a widespread market perception that the bank cannot cut rates because it would squeeze the profitability of already struggling regional banks, the people said.

Clarifying that it is still prepared to lower its negative rate could give the BOJ more policy room for maneuver and some scope to influence markets. The bank’s massive asset haul in recent years has turned it into the nation’s biggest holder of government debt, and its biggest single holder of stocks via its exchange-traded fund purchases.

The central bank aims to announce the results of its policy assessment at its next meeting on March 18-19. The BOJ says the review is aimed at making its current framework more effective and nimble, given the longer time needed to hit its inflation target following the pandemic.

There is a growing view that the BOJ should signal the possibility of a further rate cut in advance. When it introduced the negative rate policy in 2016, the abrupt decision rocked financial markets, stirring criticism.

The BOJ is also considering stronger measures to mitigate side effects of the negative rate policy on financial institutions.

It will also consider making its purchases of exchange-traded funds flexible and allowing long-term interest rates to move more widely than the current target range of between minus and plus 0.2%.

The BOJ isn’t the only central bank trying to clarify the scope of its options.

European Central Bank policymakers are uncomfortable that investors appear to be largely ruling out more interest-rate reductions, and agreed to stress that cuts remain a viable option.

Last week, the Bank of England said banks should be ready for the possibility of subzero rates, though not for at least six months.

The BOJ, the ECB and counterparts in Switzerland and Denmark are the only institutions to still use negative rates, and none lowered them in 2020 amid the severity of the coronavirus crisis.

Economists expect the BOJ would only cut rates if the yen strengthened to 95 per dollar, according to a Bloomberg survey in January. A strong yen could further weaken an economy battered by the pandemic by reducing the profits and competitiveness of exporters.

The central bank has made it clear that its focus during the pandemic is providing funding to virus-hit companies and keeping financial markets stable. Of 44 economists surveyed, all but one said cutting the rate further below zero is an unlikely option in coming years.

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