MUFG Chief Criticizes BOJ's Policy for Fueling Japan Anxiety

  • CEO Hirano says prolonging negative rates would hurt banks
  • Lenders won't be able to pass on costs to depositors: Hirano

Nobuyuki Hirano.

Photographer: Akio Kon/Bloomberg

The top executive of Japan’s biggest bank delivered a rare criticism of the central bank, saying its negative interest-rate policy has contributed to anxiety among households and companies and prolonging it may weaken financial institutions.

“Both households and businesses have become skeptical about the effectiveness of policy measures to address the current economic problems,” Nobuyuki Hirano, president of Mitsubishi UFJ Financial Group Inc., said Thursday in a speech in Tokyo. Declines in banks’ net interest margins “will become even more severe and protracted by the implementation of the negative interest-rate policy,” he said.

Hirano said there’s “no guarantee” that negative rates will encourage companies to increase capital spending because low borrowing costs and deflation have been “business as usual for over a decade.” Lenders won’t be able to pass on negative rates to individual and corporate depositors, he said in English at a conference of international bankers.

His remarks are among the strongest yet by a bank executive following the Bank of Japan’s decision in January to start charging lenders on some of their excess reserves to spur credit growth and investment. Central bank Governor Haruhiko Kuroda said in New York late Wednesday that Japan’s financial markets would have been in worse shape if the BOJ didn’t introduce the policy, and there is room for further rate cuts.

Bank Lending

So far the policy has yet to spur bank lending, which rose the least in three years in March, BOJ figures showed this week. The average interest rate on new loans fell to a record-low 0.793 percent in February, and banks including Mitsubishi UFJ have cut deposit rates to as low as 0.001 percent.

Mizuho Financial Group Inc. Chief Executive Officer Yasuhiro Sato said in a speech Wednesday that the central bank’s initiative needs to spur a positive economic cycle and it will take time to bear fruit.

Politicians and analysts have also criticized the negative-rate program, which has reduced interbank lending, prompted money-market funds to stop accepting cash, and failed to stem gains in the yen. Kuroda has regularly appeared in parliament to answer lawmakers’ questions about the policy.

‘Collateral Damage’

“From more illiquid markets for government bonds to indications that households are disengaging from the financial system, along with greater political scrutiny of the central bank and swelling popular anger about its policies, there is growing awareness of potential collateral damage,” Mohamed El-Erian, chief economic adviser at Allianz SE, wrote in a column for Bloomberg View.

Hirano, 64, also hit out at discussions among global regulators toward restricting the use of banks’ own methods for gauging operational risk, questioning the need for authorities to impose a standardized regime when they’re already able to review internal models. 

“A simple comparison of figures measured by a less accurate methodology can be misleading,” Hirano said. “The solution is not to limit the use of internal models and allow only standardized methods,” he said, adding that investors need comprehensive information to analyze banks’ soundness.

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