Japanese Banks See ‘Severe’ Impact If BOJ Expands Negative Rates

  • Central bank refrained from boosting stimulus Thursday
  • BOJ Governor Kuroda aware sub-zero rates could weigh on banks

Six Step Plan for Successful BOJ Intervention

Japan’s main bank lobby hinted that the central bank was right to keep monetary stimulus unchanged Thursday, saying that sending negative interest rates even lower would hurt the industry.

“The impact on banks would be more severe if negative rates are expanded,” Japanese Bankers Association Chairman Takeshi Kunibe said at a briefing in Tokyo hours after the decision.

Takeshi Kunibe

Photographer: Akio Kon/Bloomberg

Japanese banks have expressed concern that the BOJ’s policy is eroding their profitability by shrinking lending margins. Bank of Japan Governor Haruhiko Kuroda said Thursday that he’s aware the negative-rate strategy unveiled in January could weigh on banks, while adding that he doesn’t believe it will directly eat into their profits.

The yen gained to the strongest level since August 2014 against the dollar after the BOJ’s decision, which came as market volatility soars ahead of the U.K. vote next week on whether to leave the European Union. Kunibe said the currency’s gains following the BOJ’s inaction didn’t reflect Japan’s economic fundamentals.

The lobby group chief warned of the need to be prepared for swings between “risk-on” and “risk-off” moves in financial markets, with fears over a so-called Brexit fueling the current flight to safety. He said he hopes that Britain stays in the EU.

Sumitomo Mitsui Banking Corp. has no plans to leave the group of 22 primary dealers of Japan’s government bonds, said Kunibe, who is president of the unit of Japan’s second-biggest banking group. Larger rival Bank of Tokyo-Mitsubishi UFJ Ltd. is considering withdrawing from the group as record-low bond yields diminish returns on the securities.

Kunibe said primary dealers can benefit from exchanging opinions with the Ministry of Finance, and from having special opportunities to bid for the bonds.

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