Former BOJ board member: Bank may scrap negative interest rates by the end of this year

ICYMI, former Bank of Japan policy board member Makoto Sakurai spoke in an interview, saying the Bank may scrap negative interest rates by the end of this year to adjust the currently excessive level of monetary easing.

Via a Bloomberg report (gated):

  • “They could do it at any time and it won’t be a surprise, given the current economic recovery”, and that under the (relatively) new Governor Ueda “the BOJ has appeared cautious, but they have steadily taken policy actions at a faster pace than expected”
  • added that real interest rates have fallen significantly, around the lowest level since the yield curve control program was introduced in 2016
  • Sakurai saw the hurdle to further adjust yield control as higher than scrapping negative rates. That’s because the ceiling for long-term yields is already at 100 basis points, and raising it to 150 for instance could cause problems in Japan’s financial system or add stress to the fiscal environment, he said. “Changing the negative rate would lead to slight changes in the shape of the yield curve,” Sakurai said. “But the overall curve has already risen so it’s ok for the furthest part of short-term rates to increase.”
  • That’s one indication there is too much easing, and suggests that the next BOJ move is more likely to address that, rather than aim to enhance stimulus sustainability, he said. “There is too much extraordinary monetary easing now,” Sakurai said. “The problem with that is it does unnecessary things like continuing to expand the BOJ’s balance sheet.”

The Bank of Japan next meet on October 30 and 31.

  • Scrapping negative rates this month may also be difficult as another diet session starts later this week, raising the risk that politicians would slam the bank for the sudden shift. That’s something the BOJ may think about, Sakurai said. If there is no action on rates this month, Ueda’s BOJ could adjust forward guidance to indicate changes are coming, he said.

This article was written by Eamonn Sheridan at Source