Will Japan's Negative Rate Backlash Affect Its Central Bank's Next Decision?by and
Policy cited as a source of concern at G-20 meeting in China
Lawmakers in Japan have grilled Kuroda on the new policy
A backlash of criticism and confusion after the Bank of Japan’s surprise introduction of a negative interest rate may make it less likely that Governor Haruhiko Kuroda will push the benchmark lower this month.
So say analysts at banks including at Credit Suisse Group and Credit Agricole, noting criticism at the Group of 20 meeting, in Japan’s parliament and in opinion polls. Lawmakers called Kuroda to testify on 15 days since the decision, which also sparked public comments in Shanghai from a European policy maker.
The reactions mark the most opposition Kuroda has faced since taking office in March 2013, although he has also faced resistance from some quarters when the yen tumbled rapidly. With inflation still nowhere near target and an upper house election due in summer, pressure is rising for both the BOJ and the government to generate growth.
“The negative rate has been so unpopular at home and abroad,” said Hiromichi Shirakawa, the chief Japan economist at the Credit Suisse Group and a former BOJ official. “It will be hard for the BOJ to quickly cut the rate further.”
Since the decision on Jan. 29, the governor has been summoned to parliament more than in any other February since at least 2002. In one stretch, he was called on eight consecutive week days as lawmakers peppered him with questions on how the new policy will affect regular people.
A recent poll by the Nikkei newspaper showed more than a half of Japanese households disapprove of the strategy.
During the G-20 meeting, Eurogroup chief Jeroen Dijsselbloem singled out BOJ policy, saying "the debate was also about Japan, to be honest -- there was some concern that we would get into a situation of competitive devaluations.” Kuroda said there was “absolutely no” opposition or opinions expressed about the BOJ’s negative-rate policy.
Kazuhiko Ogata with Credit Agricole said unease among G-20 officials makes it likely the BOJ will increase the purchase of exchange-traded funds as the main tool for additional stimulus and to avoid cutting the minus 0.1 percent interest rate further. This is because a rate cut is seen as a currency measure among policy makers, according to Ogata.
“Impatience is growing among the G-20 that Japan still has to rely on weakening the yen even after three years of doing so,” said Credit Suisse’s Shirakawa. “This will make it harder to lower the rate further.”
The yen weakened 30 percent through 2015 since Shinzo Abe became prime minister, promising to end deflation. His handpicked governor Kuroda has expanded easing three times, depreciating the yen, boosting stocks and raising corporate profits. This effect was muted this year with the currency rising about 7 percent as demand for safe assets rose amid uncertainties over the global economy.
Recent economic data suggest no easy time ahead for the BOJ. Household spending dropped for a fifth month in January and profits dropped for the first time since 2011 in the last quarter, government reports showed Tuesday. Consumer prices excluding fresh food were unchanged in January as cheap oil capped inflation, keeping it far from the BOJ’s 2 percent inflation target.
“It’s a very tough time for Kuroda,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. and a former BOJ official. “Reaching the inflation target is unforeseeable yet further easing may not be so effective with a risk of inviting more criticism at home and abroad.”