Negative Rates Fail to Spur Japan Bank Loans in First Month

  • Deposits grow even after banks cut interest rates to 0.001%
  • BOJ's policy won't have an immediate effect: HSBC's Shirota

Japanese loan growth slowed slightly in February and deposits accelerated -- the opposite effect sought by the central bank as it began its negative interest-rate program.

Loans rose 2.2 percent from a year earlier, easing from a revised 2.3 percent in January, the Bank of Japan said in a statement Tuesday. Deposits climbed 3.1 percent in February, faster than 2.9 percent a month earlier.

It may be too early to draw firm conclusions from the data on the effectiveness of the central bank’s negative interest-rate policy, which was implemented on Feb. 16. The BOJ began charging lenders 0.1 percent interest on some of their reserves to stimulate the economy by lowering borrowing costs and spurring banks to lend more of their spare cash.

“Introducing a negative interest-rate policy isn’t going to have an immediate effect,’’ said Shuji Shirota, head of the macroeconomic strategy group at HSBC Securities Japan Ltd. in Tokyo. “We don’t even know if it will have an effect going forward.’’

Profit Squeeze

The policy has put pressure on banks’ profitability because they are being forced to lower interest rates on loans more than those on deposits. Bank of Japan Governor Haruhiko Kuroda said in a speech on Monday that lenders’ earnings will be “negatively affected.”

At the same time, banks will benefit in the long run because negative rates will support households and companies and help to overcome deflation, according to Kuroda. “These positive effects on the economy and the negative impact on financial institutions’ profits are two sides of the same coin,” he said.

Japan’s economy shrank an annualized 1.1 percent in the last three months of 2015, revised government figures showed Tuesday. The country had zero inflation in January, far from the central bank’s goal of 2 percent.

Savers put more cash into their accounts last month even after banks including Mitsubishi UFJ Financial Group Inc. cut interest rates on ordinary yen deposits to 0.001 percent. The rate would pay the equivalent of just $10 in annual interest on a $1 million balance.

The average 10-year fixed-rate home loan at Japan’s three largest banks fell to 0.8 percent on March 3 from 1.05 percent on Jan. 28, according to the BOJ.

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