長期金利低下 マイナスに潜む不安

--The Asahi Shimbun, Feb. 10
EDITORIAL: BOJ's negative interest rate policy positively ineffective
(社説)長期金利低下 マイナスに潜む不安

The benchmark 10-year Japanese government bond yield on Feb. 9 fell below zero percent on the market for the first time. Is this good news or bad? Many people probably don’t know, but they certainly must be feeling anxious.

In normal transactions, the idea of negative interest rates is absurd.

Just think about it: You lend money to someone and you have to pay interest to the borrower? That’s ridiculous. You are obviously better off not lending to anyone because you at least won’t lose any money.

The ridiculous situation surrounding Japanese government bonds was caused by the Bank of Japan’s negative interest rate policy announced on Jan. 29.

BOJ Governor Haruhiko Kuroda stressed that adding this negative interest rate policy to his already substantial monetary easing policy “should make for probably the most effective framework in the history of the central bank.”

In a sense, the outcome has surpassed Kuroda’s expectations. Mortgage rates, which were already historically low, have come down further, and the near-nonexistent interest rates on time deposits have shrunk even more. Financial institutions have stopped selling low-yield fund products.

But will these developments improve the Japanese economy? We believe the opposite will be the case.

Even if lending rates drop further, it is unlikely that businesses will suddenly start investing more amid sluggish domestic demand. And even if banks further lower interest rates on savings and move on to negative rates, consumers probably will not start spending more so long as their future remains uncertain.

Switzerland and Sweden have already implemented negative interest rate policies, but their economy-pumping effects have been marginal at best. In fact, there are growing fears of “side effects,” such as people keeping their money under the proverbial mattress and banks losing their earnings.

It will soon be three years since Kuroda went ahead with a “new phase” of quantitative and qualitative monetary easing in keeping with Prime Minister Shinzo Abe’s “Abenomics” theory that drastic monetary easing should jump-start the anemic economy.

Although Abenomics has raised stock prices and devalued the yen against the dollar, it has brought no significant changes to the nation’s economic growth rate and consumer prices. Because of this disappointing outcome, the Bank of Japan adopted the negative interest rate policy last month.

On Feb. 9, the Nikkei 225 index fell by more than 900 points, and the yen-dollar exchange rate closed in the lower 114-yen level for the first time in 15 months. These market reactions were the opposite of what all past monetary easing policies brought, and the central bank obviously did not expect this highly irregular outcome.

If this situation continues, the Japanese economy may well become trapped in a vicious cycle of having to rely on further extreme monetary easing, with no relief in sight. An urgent review of the central bank policy is called for.

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