Many BOJ Policymakers Worried over Negative Rate Policy: Transcripts

Tokyo, July 15 (Jiji Press)–Many Bank of Japan policymakers voiced concerns about potential side effects of a negative interest rate policy at the central bank’s monetary policy meeting in January 2016, at which its introduction was decided, according to transcripts of the meeting released Wednesday. The BOJ’s Policy Board voted five to four to adopt the policy at the Jan. 28-29, 2016, meeting. Among the five members who voted for the policy were then BOJ Governor Haruhiko Kuroda and the two then deputy governors–Kikuo Iwata and Hiroshi Nakaso. The central bank was struggling to achieve its 2 pct inflation target at the time. On Wednesday, the BOJ released transcripts of policymaking meetings held in the first half of 2016. In January 2016, crude oil prices dropped while concerns grew over a slowdown of the Chinese economy. Under the circumstances, Japanese stock prices fell and the yen rose. Under its unprecedented monetary easing regime introduced in April 2013, the Kuroda-led BOJ purchased large amounts of financial assets, such as Japanese government bonds. But the ultraeasy policy failed to produce intended effects in realizing stable price growth. At the January 2016 policy meeting, the board also decided to push back the target of achieving 2 pct inflation to the first half of fiscal 2017 from the second half of fiscal 2016. Under the negative rate policy, put in place in February 2016, an interest rate of minus 0.1 pct was applied to part of commercial banks’ current account deposits at the BOJ, in order to encourage them to use their funds for loans to companies rather than depositing the money at the central bank. According to the transcripts, Kuroda explained that the negative rate policy would “further strengthen” the effects of the BOJ’s ultraeasy regime. Nakaso stressed the need for the negative rate policy, citing the “growing risk” of a decline in companies’ willingness to raise wages “adversely affecting the underlying trend of prices.” Four then Policy Board members opposed the negative rate policy at the January 2016 meeting, wary of its side effects. Of them, Sayuri Shirai said its introduction would make financial market players think that “it has become difficult (for the BOJ) to continue or increase its asset purchases.” Takahide Kiuchi said that the negative rate policy would be “an additional significant blow to the earnings environment of financial institutions as a whole.” At the BOJ policy meeting in March 2016, then board member Takehiro Sato criticized the negative rate policy, saying that it “is working to strengthen the deflationary mind-set.” Nakaso defended the policy. “Doing nothing was not an option” for policy authorities, he said. At the meeting, Sato voted against the continuation of the negative rate policy. The negative rate policy led to plunges in long-term interest rates, worsening the investment climate for life insurance companies and pension funds, which mainly buy JGBs for their asset management. In September 2016, the BOJ introduced a yield curve control framework, which combines the negative rate policy and a policy of guiding long-term interest rates, measured by the yields on 10-year JGBs, to around zero pct, in order to continue its unprecedented monetary easing while mitigating the regime’s side effects. The negative rate policy remained in place for about eight years until March 2024. END [Copyright The Jiji Press, Ltd.]