A close economic advisor to Japanese Prime Minister Shinzo Abe has described the Bank of Japan (BOJ) negative interest rate policy as being “extremely beneficial” to the world’s third largest economy.
Yasutoshi Nishimura, a member of the House of Representatives in the Diet, told Reuters that the policy is currently keeping mortgage rates low and giving a boost to corporate debt issuance even if the strategy may be strangling bank earnings short term.
He said the plus points outweigh those negatives as summer spending, both private and corporate, will be boosted hugely. The comments by the influential politician are a hint that the BOJ might be considering dropping rates even further after its policy meeting towards the end of September.
“We need to avoid falling back into deflation,” Nishimura said in the interview. “It’s important to keep cash flowing through the system. The positives of the current strategy by the BOJ are far more important than the negatives. I don’t think we will see the BOJ reversing the current easing policy, it’s extremely beneficial to the Japanese economy on the whole.”
Sources close to the central bank are sure the BOJ will make negative rates the focus of future quantitative easing as it transfers from a base money centred strategy.
In the midst of the BOJ’s huge asset-purchasing program which started at the beginning of 2016, the central bank stunned the financial world by pulling interest rates down to a negative figure, essentially meaning they are charging banks a fee for keeping funds in their vaults, about 0.1 percent.
“The comments from Nishimura could be seen as trying to give the thumbs up to a policy that was initially very unpopular with a lot of politicians when it was brought in,” said Anthony Russell, Senior Vice President at Monex BMO Securities in a phone interview on Wednesday. “Abe will be happy to get some political back-up at this moment in his career, there’s no doubt of that.”
Reduced banking profits made the policy unpopular in the corporate world and many consumers feared private savings rates could also be dropped. However, BOJ Governor Haruhiko Kuroda promised that would not be the case, and Nishimura seemed to affirm this in the Reuters interview.
Immediate effects of the policy have been a drop in borrowing costs and reduced government bonds, leading to more people taking out cheaper loans for new homes.
