No need to adopt negative deposit rates, BoJ governor says

Bank of Japan Governor Haruhiko Kuroda said on Monday he saw no need to implement negative deposit rates in Japan as borrowing costs were already very low due to the central bank’s aggressive asset purchases.

The European Central Bank has adopted negative deposit rates to penalize financial institutions for parking excess funds at the central bank and encourage them to boost lending instead.

Such a step was unnecessary in Japan as the BOJ’s massive asset-buying program, dubbed “quantitative and qualitative easing” (QQE), was pushing down bond yields across the curve, Kuroda said.

“Our QQE has had an intended impact on the economy and financial markets. Banks have been increasing their loans to the real economy … Rebalancing has also been taking place,” Kuroda told a seminar in Tokyo.

“So we don’t think we should implement negative deposit interest rates,” he said.

Kuroda also warned of potential drawbacks from excessive financial regulation such as hampering banks’ profit-making activity, as global policymakers push through drastic regulatory reforms.

The extent of effects of large-scale regulatory reforms, such as the Volcker rule in the United States, on the flow of funds among financial institutions remains unknown, Kuroda said.

“From a long-term perspective, in order for the financial system to ensure stability and in turn contribute to sustainable economic growth, financial institutions need to be sufficiently profitable through active and innovative financial intermediation,” he said.

“In this regard, it is important to remove any regulatory excess, inconsistency among regulations, and uncertainty regarding the regulatory environment.”

Most economists in a Reuters poll published on Monday expect the Bank of Japan will expand its stimulus program in the first half of next year, although a small minority of respondents forecast no further central bank easing in 2016.

Source: Reuters