BOJ members 'divided over negative rates'

TOKYO • Bank of Japan (BOJ) policymakers engaged in heated debate during their policy review this month on the pros and cons of their decision in January to adopt negative interest rates, with one even saying it was preferable to roll it back.

A summary of the March 14-15 meeting of the nine-member board that was released yesterday showed that some warned of weak inflation expectations and persistent overseas headwinds even after the surprise January action.

The dissenters were not named, but their reservations highlighted the problems the central bank faces in trying to boost growth and reflate the economy with dwindling policy ammunition.

"It's preferable to roll back the negative rate policy. But abandoning it immediately after introducing it would cause market confusion and risk eroding trust in the BOJ. With the effects still not clear, we should maintain the policy," said one of the four members who disagreed with January's decision.

Another board member said a roll-back was "out of the question" as markets were already moving on the assumption that negative rates would stay.

The BOJ unexpectedly cut a benchmark interest rate to minus 0.1 per cent in January as it stepped up its faltering efforts to revive growth, pull Japan out of years of deflation and achieve a goal of 2 per cent inflation. But the radical policy prescription has failed to arrest an unwelcome rise in the yen.

At the March meeting, advocates of negative rates said the policy was exerting its intended effects, with mortgage loan rates already on the decline, the summary said.

Dissenters, however, argued that the policy may have aggravated the public's deflationary mindset by causing anxiety over the outlook for Japan's economy. Others said the policy gave markets the impression the BOJ had no other choice but to revert to a negative rate policy because its asset-buying programme was reaching its limits.

Concerns were expressed over the gloomy outlook, with one member warning that risks to the economy remained tilted to the downside, the summary noted. Several members complained that wage growth remained slow and the BOJ's own index stripping away the effect of fresh food and energy costs may slip below 1 percent.

The index, which the BOJ scrutinises in gauging the broad price trend, showed annual consumer inflation slowed to 1.1 per cent in January from 1.3 per cent in December as the yen's rebound pushed down prices of imported goods.

This month, the BOJ kept monetary settings unchanged but downgraded its economic assessment, signalling its readiness to deploy additional stimulus if risks derail a fragile recovery.


A version of this article appeared in the print edition of The Straits Times on March 25, 2016, with the headline 'BOJ members 'divided over negative rates''. Print Edition | Subscribe