The Bank of Japan is not only not worried about negative interest rates, it’s willing to push them even deeper into negative territory in order to get what it wants.
What does the Japanese central bank want? More corporate investment, more investment in the housing market and that ever elusive inflation rate of 2%.
BOJ Governor Haruhiko Kuroda on Sunday said that he will push interest rates down further “if necessary … to stimulate the economy and achieve the 2% inflation target at the earliest possible time,” in an interview with Chinese news agency Caixin. Kuroda was in Shanghai meeting with G-20 finance ministers and central bank governors.
He added that the BOJ is, for now, “watching and assessing the impact of our new policies on the financial market and also on the real economy.”
Since January, when the BOJ adopted negative interest rates, commercial banks in Japan have reduced interest rates on mortgage and corporate loans by 20 and 10 basis points, respectively, Kuroda said.
Referring to the combination of quantitative and qualitative monetary easing (QQE) and negative interest rates, Kuroda said, “The impact of the new monetary policy framework has had the intended impact on the financial market, and this reduction of real interest rates would further stimulate corporate investments as well as housing investment in the coming months.”
He added that negative interest rates were having little direct impact on the banking industry.
“If you look at banking sector profitability in the last three years, in which we continuously implemented QQE to reduce the entire yield curve, the lending rate actually continued to decline, and yet the banking sector enjoys a very high profit levels,” he said.
“Unlike the European banking system, the Japanese banking system enjoys good profits with substantial capital,” he said. “The Japanese banking sector is probably at this stage one of the soundest, healthiest in the world.”
The next monetary policy decision from the BOJ is expected on March 14. Some experts have suggested that major central banks around the world, especially the BOJ, consider adopting an extreme strategy involving “helicopter money.” This is where the government makes more money available to the public to jumpstart the economy – considering they do not have much room to maneuver left.