Bank of Japan scrambles to find positives in negative rates
By Leika Kihara
TOKYO (Reuters) - Bank of Japan (BOJ) officials have been scurrying to commercial banks to explain and apologize for its surprise adoption of negative interest rates in January, while Prime Minister Shinzo Abe has distanced himself from a decision that is proving unpopular with the public.
Some officials close to the premier say it could cause a rift in his once close relationship with BOJ Governor Haruhiko Kuroda, whose radical stimulus measures have so far failed to lift Japan clear of two decades of deflation and stagnation.
A government press relations official said there was nothing to add beyond remarks made publicly by Chief Cabinet Secretary Yoshihide Suga that no such rift exists. A BOJ spokesman declined to comment.
With the economy shrinking again and prices flat, Abe has already announced he will set up a panel to consider fresh budget spending to provide the stimulus that monetary policy has struggled to achieve.
The controversy over the negative rates move, which unlike his previous eye-catching policy steps was not welcomed by Japan's stock market, comes even as Kuroda is on the verge of gaining greater control of the bank's nine-member board. Two skeptics of his stimulus program are stepping down in the coming months.
The diminishing returns from his preferred modus operandi of market-shocking measures will leave him little option but to revert to the drip-feed easing he derided in his predecessor Masaaki Shirakawa if inflation fails to pick up, some analysts say.
"Given the confusion caused by the January move, I don't think the BOJ will be able to cut rates again for the time being," said Hideo Kumano, a former BOJ official who is now chief economist at Dai-ichi Life Research Institute.
"The BOJ may instead expand asset purchases in small installments. That would be returning to the incremental approach of easing Kuroda dismissed in the past as ineffective." Continued...