According to an anonymous source at the Bank of Japan, in case a negative interest rate on loans is adopted, the deposit rate will be further lowered. The BOJ had provided $223 billion of credit under the Stimulating Bank Lending Facility. Experts say that the introduction of negative rates for lending will support economic activity.
The central bank’s next meeting will take place on April 27-28. Most economists expect the BOJ to intervene to curb strong yen. Given that the yen depreciated even on talks about possible negative rates, the real measure would be quite effective.
Some analysts say Japan officials could follow the example of European policymakers. The European Central Bank plans to launch the TLTRO-II in June. If commercial banks meet the ECB’s criteria, they will be offered a negative interest rate on loans - that is, the central bank will pay commercial banks to borrow its money. The Bank of Japan seems to be interested in this step too.
Currently, the Japanese economy needs such stimulus as banks’ profit margins from lending to big companies fell to the lowest level in a decade. Moreover, demand for credit from large, medium and small-sized firms also dropped.
“This wouldn’t address the underlying structural problem for the banks, which is not a loan supply issue but a demand issue,” analysts at Jefferies Group said in a report.
