BOJ’s Suzuki sees negative effects of current policy

November 25, 2017

Tokyo- Bank of Japan Policy Board member Hitoshi Suzuki has said he is closely watching negative side effects of the current monetary policy, such as shrinking interest margins at commercial banks.

"The negative interest rate policy gives a substantially large impact on the earnings at financial institutions," Suzuki said in a recent interview.

"If financial institutions are rocked by deteriorating profitability, their functions as financial intermediaries would be affected," said Suzuki, a former Bank of Tokyo-Mitsubishi UFJ executive.

Under the current policy, the BOJ imposes an interest rate of minus 0.1 percent on part of commercial financial institutions' current account deposits at the BOJ, while guiding 10-year Japanese government bond yields to around zero percent.

"At regional lenders, the impact of the monetary easing may become evident faster than at major banks," he said, adding that a close watch is necessary for regional banks, shinkin banks and other small lenders.

Asked about an exit strategy for the unconventional policy, Suzuki underscored the importance of attaining the BOJ's 2 percent inflation target in the first place.

But the BOJ "may fine-tune" its policy even before the target is met, he said, indicating the possibility that the central bank may start monetary policy normalization before the country's inflation reaches 2 percent.

The current policy also includes massive asset purchases, including JGBs and exchange-traded funds.

Suzuki said he does not see the need to take additional monetary easing measures as proposed by another Policy Board member Goshi Kataoka. Both Suzuki and Kataoka joined the nine-member board in July.

Suzuki said the BOJ's purchases of ETFs, currently carried out at an annual pace of 6 trillion yen, remain necessary even after the 225-issue Nikkei stock average hit a 26-year high earlier this month. Jiji Press