Former BOJ members do not see rate cuts without a new crisis

Former BOJ members do not see rate cuts without a new crisis

According to Makoto Sakurai, whose term ended last month, the Bank of Japan is very unlikely to see a large negative interest rate deepen without a new economic crisis.

“The Bank of Japan did not cut interest rates,” Sakurai said in his first interview since leaving the central bank two weeks ago, even in the midst of a pandemic shock last March. “The kind of historic crisis needed to trigger a cut rarely happens.”

Mr. Sakurai, who was regarded as a central supporter of the nine boards of President Haruhiko Kuroda, has also been able to bring banks closer to interest rate behavior with the introduction of new lending incentives in the policy review last month. Said he didn’t.

His statement is that the BOJ’s rate cuts remain high and, despite efforts to show that the central bank is ready to do so last month, weak inflation alone is not enough to trigger such a move. is showing. His comments could also reinforce the view among some investors and economists that they have announced lending incentives primarily to give the impression that the Bank of Japan has not dialed back stimulus measures.

“The challenge for continuing easing is the harsh business environment for banks due to prolonged low interest rates,” Sakurai said, characterizing the review as a way to maintain stimulus over the long term. “It was very important to deliberately set up mechanisms to provide banks with some relief and mitigate the effects of possible rate cuts.”

Incentives introduced last month reward commercial banks for lending money by paying various interest rates on some of the BOJ’s deposits. Under incentives, deeper rates automatically increase the rewards for lending money.

The Bank of Japan has also decided to buy equity funds in a more flexible way amid growing criticism that it has pushed stock prices to their 30-year highs after becoming the largest single-holder of Japanese equities at the end of last year. Decided.

That extra flexibility, coupled with the BOJ’s clearer than expected yield range, has allowed banks to cut back on asset purchases. This is a move that is considered a rewind of the stimulus by some economists.

“The Bank of Japan only needs to buy ETFs when the financial markets are in a panic. Such opportunities rarely occur, so there will be few purchases,” Sakurai said. “In my view, ETF purchases should be zero or unlimited, depending on market conditions.”

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