The Bank of Japan isn’t running out of policy options in its attempt to reinvigorate the economy, a senior government official said Tuesday, days after the central bank surprised investors by adopting a negative interest-rate strategy to spur banks to lend more.
“I don’t think that’s the case,” deputy chief cabinet secretary Hiroshige Seko said when asked in an interview whether BOJ policy making was nearing its limits. “There are other central banks that have introduced lower negative interest rates,” he said. “This is not the last resort,” Bloomberg reported.
BOJ Governor Haruhiko Kuroda’s decision to penalize a portion of banks’ reserves held at the central bank is a strategy once shunned by central bankers, yet which recently has been adopted by Sweden, Denmark, Switzerland and the European Central Bank.
The strategy will complement the record asset-purchase program that has expanded the central bank’s balance sheet to three quarters the size of the economy since Kuroda took the post in 2013. The BOJ’s policies also have weakened the yen by more than 20% against the dollar, helping Japanese exporters and lifting stock prices.
The negative interest rate policy won’t affect individual depositors if banks react by investing actively, Seko said at the prime minister’s residence in Tokyo.
“This doesn’t mean that financial institutions will be offering negative interest rates,” he said. “If the banks act appropriately, this is not something that will affect ordinary depositors.” The appropriate response on the part of the banks would be to “actively lend money and make investments,” he said.
Seko added that the BOJ has been communicating with financial institutions to make sure the effect of the new policies on their profits isn’t too harsh, yet he wanted to monitor the situation. The negative-interest rate plan, which was approved by the BOJ board on a 5-4 vote, takes effect Feb. 16.
Inflation Target Delay
On Friday, the BOJ also announced it was delaying for the third time in a year the timing of reaching its 2% inflation target. It is now aiming to reach that level by around the six months starting in April 2017.
“It can’t be helped, because it was not foreseeable that oil prices would fall to this extent,” Seko said. “The target is being maintained and policies are being introduced to achieve it, so I’m not concerned.”
Recent weakness in exports, household spending and production have prompted concern that a global economic slowdown is starting to weigh on Japan’s economy, and debate is deepening over whether it can withstand the effects of a planned sales-tax increase in April 2017.
“The global economy may affect the Japanese economy somewhat, or it may be actually affecting it now,” Seko said. Whether that leads to a delay in the introduction of the sales tax rise depends on economic conditions at that point, he added. He declined to comment on when the final decision will be made.
