Japan Banks Continue Slide After Kuroda's Negative-Rate Bazooka

  • Suprise move means central bank to charge 0.1% on new deposits
  • Markets may have gone too far says Credit Suisse analyst Miura

Japanese banks including Mitsubishi UFJ Financial Group Inc. extended losses Monday in Tokyo following the central bank’s surprise move to start charging lenders for some of their deposits held at the institution.

MUFG, Japan’s biggest bank, fell as much as 7.3 percent on Monday morning, pushing year-to-date losses to 25 percent. Sumitomo Mitsui Financial Group Inc. dropped as much as 7.7 percent and Mizuho Financial Group Inc. declined as much as 6.4 percent. Shinsei Bank Ltd. fell 11 percent after lowering its full-year forecast on Friday.

“Bank shares are being sold today on concerns of lower margins on loans and securities, as they were on Friday,” said Takashi Miura, a Tokyo-based analyst at Credit Suisse Group AG. “But in reality the megabanks have a high proportion of overseas lending, which will benefit from the weakening yen, and the duration of their JGB holdings is short; I think the market may have gone too far.”

Bank share prices rose immediately after the Bank of Japan’s announcement Friday before falling steeply and then paring losses at the close as investors digested the move. The Topix Banks Index fell as much as 6.6 percent Monday, the worst performer on the benchmark Topix, which rose as much as 1.8 percent.

Three Tiers

Lenders’ cash at the central bank will be subject to a three-tiered rate system, whereby the BOJ will continue to pay 0.1 percent on most existing deposits, offer zero interest on required reserves and charge 0.1 percent on additional deposits. When the policy takes effect Feb. 16, the 0.1 percent negative rate will probably apply to about 10 trillion yen to 30 trillion yen ($80 billion to $250 billion) of funds parked in current accounts at the BOJ, according to people with knowledge of the matter.

BOJ Governor Haruhiko Kuroda said that while the move will push down borrowing costs, he doesn’t expect it will have a large impact on banks.

The central bank will cut the interest rate “further into negative territory if judged as necessary,” it said in a statement. Overcoming deflation as soon as possible “is essential for improving the business conditions for the financial industry,” it said.

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