Photographer: Tomohiro Ohsumi/Bloomberg

Bank of Japan Has No Lower Rate Limit, Kuroda Ally Says

  • Kawai's comments underscore scope of Kuroda's easing options
  • Policy will gradually have 'positive impacts,' Kawai says
Assessing the Impact of the BOJ's Negative-Rate Policy

The Bank of Japan’s negative interest rate could be reduced to as low as negative 1 percent from its already record low of minus 0.1 percent, said a professor who has collaborated on research with Governor Haruhiko Kuroda.

“There is no floor for a negative interest rate,” Masahiro Kawai said in an interview in Tokyo on Tuesday, adding that he wouldn’t find it surprising if the rate “goes down to a minus 1 percent. The BOJ can move it as much as they want.”

The comments underscore the scope of Kuroda’s easing options; he pledged in a speech Wednesday to cut the negative rate further if necessary. In an unexpected decision, Kuroda led the BOJ board Friday to adopt a negative interest-rate strategy -- effectively penalizing a portion of the reserves banks hold with the central bank -- to spur financial institutions to lend in a weakening economy.

Haruhiko Kuroda.
Haruhiko Kuroda.
Photographer: Simon Dawson/Bloomberg

The surprise move sent bond yields to a record low, triggered a tumble in stocks in the banking sector and weakened the yen, which in January had been appreciating against the dollar. The board could extend the move, which complements the BOJ’s record asset-purchase program, once the rate was cut again.

“The BOJ made it clear that they have one more effective tool,” said Kawai, a professor at the University of Tokyo and one of 10 private-sector advisers to the central bank. “This will gradually have positive impacts on consumer spending and business investment.”

Areas of Expansion

He added that “it’s of course possible” that the BOJ will expand stimulus in three areas -- quality, quantity and interest rates -- at the same time if it needs to take further action to attain the 2 percent inflation goal. “The timing of achieving the target will heavily depend on oil price moves,” he said.

The BOJ at last week’s meeting delayed the timing of reaching the 2 percent price target to around the six months starting in April 2017, the third postponement in less than a year.

Kawai worked for Kuroda at the Ministry of Finance from 2001-2003 when Kuroda was the top currency bureaucrat. During that time, they co-wrote an opinion piece urging the BOJ to adopt a 3 percent inflation goal and increase the monetary base through asset purchases. Kawai was made an adviser to the BOJ in September 2014.

QuickTake Negative Interest Rates

Japanese households that have their financial assets in bank deposits may suffer somewhat from the negative rate policy while it could be an opportunity for them to consider more active management of their funds, Kawai said.

Fifty-three percent of 1,684 trillion yen household assets were held in cash and deposit, according to the Bank of Japan’s flow of funds report in December, compared with just 14 percent of household assets in the U.S.

Some financial institutions already have started making changes based on the BOJ’s move. Resona Holdings Inc. lowered rates on some fixed-term deposits after the decision, said Nao Minamiguchi, a spokeswoman for the Tokyo-based lender.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE