Former Japanese Economy Minister Heizo Takenaka said yesterday the Bank of Japan would lower its minus 0.1 per cent interest rate to achieve its two per cent inflation target.
Takenaka, professor emeritus of Keio University and a member of a government panel on investment, told Reuters in an interview that the BOJ’s new policy framework is “orthodox” and it was not necessarily a big change.
As for pushing the rate it sets on some excess deposits that commercial banks park with the BOJ further into negative territory, he said: “The BOJ will do so without doubt.”
The prominent economist added, “The important issue is that people need to acknowledge that the BOJ’s policy has yielded significant effects.”
BOJ’s policy has yielded significant effects
The negative rate, introduced in February, hurts banks because they have avoided passing it along as a charge on deposits. The BOJ last month changed policy, shifting its target from the amount of money it pumps into the economy to trying to control the bond yield curve to keep longer-term rates above short-term rates.
Takenaka stressed that “core-core inflation”, which excludes food and energy prices, rose one per cent last year, reversing the one per cent decline seen before BOJ Governor Haruhiko Kuroda took the post early 2013.
“I think BOJ Governor Kuroda has been doing well, although there is strong criticism.”
The central bank will use the negative 0.1 per cent interest rate it charges on a small portion of commercial bank reserves to keep yields low at the short end of the curve. But the move has proved unpopular with banks.
Asked about an expected impact on Japan from the US presidential election, Takenaka said that uncertainty over the currency market could increase if Donald Trump wins.
This could cause the safe-haven yen to rise against the dollar, which would squeeze profits at Japanese companies, he said.
But he said the yen could face downside pressure if the Federal Reserve raises US interest rates this year and the BOJ lowers its negative interest rates.