Japan Can Hold Off Undoing Negative Interest Rates

Rarely has such major significance been attached to 10 basis points. Since he took office in April, Bank of Japan Governor Kazuo Ueda has been considered a skeptic of negative interest rates. Despite a recent eye-popping rally in the yen driven by expectations of a quick demise for this unusual setup, the central bank should feel under no pressure to quit the practice of penalizing people for saving. Prizes aren’t awarded for haste, as the governor knows from his own past.

Last week’s extraordinary yen advance — from around 147 to 141 versus the dollar in less than a day — is the kind of action you’d expect to see during a natural disaster, not a change from effectively zero to absolutely zero. Ueda’s predecessor, Haruhiko Kuroda, pushed the BOJ’s main rate down to minus 0.1% in 2016. The current chief has chipped away at some of Kuroda’s other easy money tools, often catching investors unawares, so returning borrowing costs to the black looks like a natural next step.