Photographer: Kiyoshi Ota/Bloomberg

Japan's Central Bank Isn't Out of Options Yet, Abe Aide Says

  • Negative interest rates 'not the last resort' for BOJ: Seko
  • Move won't affect depositors if banks act properly: Seko

The Bank of Japan isn’t running out of policy options in its attempt to reinvigorate the economy, a senior government official said Tuesday, days after the central bank surprised investors by adopting a negative interest-rate strategy to spur banks to lend more.

“I don’t think that’s the case,” Deputy Chief Cabinet Secretary Hiroshige Seko said when asked in an interview whether BOJ policy making was nearing its limits. “There are other central banks that have introduced lower negative interest rates,” he said. “This is not the last resort.”

BOJ Governor Haruhiko Kuroda’s decision to penalize a portion of banks’ reserves held at the central bank is a strategy once shunned by central bankers, yet which recently has been adopted by Sweden, Denmark, Switzerland and the European Central Bank. The strategy will complement the record asset-purchase program that has expanded the central bank’s balance sheet to three quarters the size of the economy.

The BOJ’s policies also have weakened the yen by more than 20 percent against the dollar since Kuroda took the post in 2013, helping Japanese exporters and lifting stock prices. The yen gained Tuesday for a second day, climbing 0.4 percent.

Nonetheless, recent weakness in exports, household spending and production have prompted concern that a global economic slowdown is starting to weigh on Japan’s economy. Economists including David Carbon of DBS Bank Ltd. in Singapore have said the government needs to follow through on Abe’s promised economic reforms to pull the country out of stagnation, rather than leave the burden entirely to the BOJ.

The negative interest rate policy won’t affect individual depositors if banks react by investing actively, Seko said at the prime minister’s residence in Tokyo.

‘Act Appropriately’

“This doesn’t mean that financial institutions will be offering negative interest rates,” he said. “If the banks act appropriately, this is not something that will affect ordinary depositors.” The appropriate response on the part of the banks would be to “actively lend money and make investments,” he said.

Seko added that the BOJ has been communicating with financial institutions to make sure the effect of the new policies on their profits isn’t too harsh, yet said he wanted to monitor the situation. The negative-interest rate plan, which was approved by the BOJ board on a 5-4 vote, takes effect Feb. 16.

On Friday, the BOJ also announced it was delaying for the third time in a year the timing of reaching its 2 percent inflation target. It is now aiming to reach that level by around the six months starting in April 2017.

“It can’t be helped, because it was not foreseeable that oil prices would fall to this extent,” Seko said. “The target is being maintained and policies are being introduced to achieve it, so I’m not concerned.”

Sales-Tax Increase

Debate is deepening over whether Japan’s economy can withstand the effects of a planned sales-tax increase in April 2017, after rises in 2014 and 1997 both sparked economic contractions.

“The global economy may affect the Japanese economy somewhat, or it may be actually affecting it now,” Seko said. Whether that leads to a delay in the introduction of the sales tax rise depends on economic conditions at that point, he added. He declined to comment on when the final decision will be made.

Seko said Abe has committed to raising the tax as planned unless there is an event on the scale of the 2008 financial crisis, referred to in Japan as the “Lehman shock.”

“We will have to decide at that point whether it is on the scale of the Lehman shock,” he said. “It would be an unhappy situation for the Japanese economy if there were another event like the Lehman shock, so Japan will take necessary economic measures to stop that from happening.”

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