BOJ chief denies negative interest rate has backfired

Bank of Japan governor Haruhiko Kuroda says he is confident that the bank's current policies will spur inflation in time.
Bank of Japan governor Haruhiko Kuroda says he is confident that the bank's current policies will spur inflation in time.PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • Japan's financial markets would be in worse shape if the central bank had not adopted a negative interest rate, Bank of Japan (BOJ) governor Haruhiko Kuroda has said, rejecting suggestions that the policy has been counterproductive.

"I really don't think that the introduction of the negative interest rate backfired or caused the yen to appreciate and stock markets to decline in Japan," Mr Kuroda said on Wednesday during a question-and- answer session at Columbia University here. "If anything, I can say that if we didn't introduce the QQE with the negative interest rate, financial markets in Japan would have been even worse."

Japan decided in January to start charging lenders on some of their excess reserves to spur credit growth and investment, in addition to its quantitative and qualitative easing (QQE) measures.

But, so far, all these measures have not served their intended purpose of boosting public spending or accelerating inflation towards the bank's ambitious 2 per cent target.

The yen has rallied almost 11 per cent since Jan 29, when the negative rate was announced, while the benchmark Topix stock gauge has fallen 5 per cent and the banking index has plunged 15 per cent.

Yesterday, Japan's biggest bank delivered a rare criticism of the BOJ, saying that its negative interest rate policy has contributed to anxiety among households and companies and that prolonging it may weaken financial institutions.

"Both households and businesses have become sceptical about the effectiveness of policy measures to address the current economic problems," Mr Nobuyuki Hirano, president of Mitsubishi UFJ Financial Group, said in a speech in Tokyo.

He said there is no guarantee that negative rates will encourage companies to increase capital spending because low borrowing costs and deflation have been "business as usual for over a decade".

Although the BOJ policy has been the subject of debate among investors, weaker global growth, changes to the outlook on US interest rate hikes and uncertainties in China and emerging markets have all been influential.

However, Mr Kuroda, who is in the US for meetings with the International Monetary Fund and talks with colleagues from the Group of 20 nations, reaffirmed his belief that his monetary policy is having its intended effects and will in time spur inflation. The BOJ will add to stimulus without hesitation if needed, he said, adding that the bank is not targeting currency markets with its policies.

BOJ executive director Masayoshi Amamiya, speaking in Tokyo, said the bank still needs to closely monitor the impact of the negative rate on financial markets.

The BOJ wants to support discussions that can enhance the robustness of the financial markets, said Mr Amamiya.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on April 15, 2016, with the headline 'BOJ chief denies negative interest rate has backfired'. Print Edition | Subscribe