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BOJ’s Negative Rate Could Have Side-Effects
World Economy

BOJ’s Negative Rate Could Have Side-Effects

The Bank of Japan’s new negative interest rate policy may bring “side-effects” if the central bank further pushes rates into the red, a former BOJ chief economist said Sunday.

Hideo Hayakawa, who was an executive director at the BOJ before he retired in 2013, said on a NHK television discussion show that people won’t see negative rates at the current minus 0.1% level. Even so, he said there were cases in Europe where negative rates have led to individuals being charged on their deposits, Bloomberg reported.

The Japanese central bank on Tuesday started charging 0.1% on a portion of the excess funds that financial institutions have in its accounts. When it introduced the policy at its January meeting, the BOJ said it would cut the rate further “if judged as necessary,” prompting fears that individuals may face charges on money kept in bank deposit accounts.

“In European countries where negative rates are close to minus 1%, smaller financial institutions are charging a small handling fee for small-size deposit accounts,” said Hayakawa, who is now a senior executive fellow at the Fujitsu Research Institute.

Japan has joined central banks in the eurozone, Switzerland, Denmark and Sweden in introducing a negative rate policy, which is intended to spur bank lending by penalizing them for holding reserves at the central bank.

Since the BOJ’s Jan. 29 move, the benchmark Topix index has plunged more than 7% and the yen has strengthened 5.5% against the dollar. Prime Minister Shinzo Abe on Saturday defended the negative-rate policy, saying it was not the cause of the current market turmoil. He blamed the Chinese economy, oil prices and the Federal Reserve’s rate hike and added that the rates individuals earn on deposits wouldn’t turn negative.

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