Japanese bankers applaud BoJ for not altering interest rates

Japan’s main bank lobby has hinted that the country’s central bank was right to keep monetary stimulus unchanged yesterday, saying that sending negative interest rates even lower would hurt the industry.

“The impact on banks would be more severe if negative rates are expanded,” Japanese Bankers Association chairman Takeshi Kunibe said at a briefing in Tokyo hours after the Bank of Japan decided not to change fiscal policy.

This meant the BoJ held its key interest rate at minus 0.1% and kept the annual target for expanding the monetary base at 80 trillion yen (€685bn).

Japanese banks have expressed concern that the BoJ’s policy is eroding their profitability by shrinking lending margins. BoJ Governor Haruhiko Kuroda said that he’s aware the negative-rate strategy unveiled in January could weigh on banks, adding that he doesn’t believe it will directly eat into their profits.

In the aftermath of the rates decision, the yen gained to the strongest level since August 2014 against the dollar.

By holding off on further expansion now, the BoJ can better consider the path of US monetary policy, watch the impact of Britain’s EU membership vote and see the outcome of a Japanese upper house election on July 10. The governor declined to comment on the possibility of an unscheduled BoJ meeting ahead of the next gathering on July 28-29.

“The BOJ will have to take bold action to arrest the strengthening yen and if it tries something in line with what it did before, there’ll be disappointment,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The yen has now surged more than 15% this year, even with the introduction of negative rates. If the UK votes for Brexit, the Japanese currency may gain as much as 6 yen per dollar, while the Nikkei 225 Stock Average could drop by 3,000 points.

Pressure has been rising for Mr Kuroda to bolster stimulus soon, given tepid economic growth.