BOJ to make negative rates centerpiece of future easing: sources

Wed Sep 14, 2016 5:55am EDT
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan will consider making negative interest rates the centerpiece of future monetary easing by shifting its prime policy target to interest rates from base money at its review next week, sources familiar with its thinking say.

The change would underscore growing concerns in the central bank and financial markets over the limits to the BOJ's economic stimulus efforts, as more than three years of aggressive bond buying is draining market liquidity.

It would also be a shift away from the BOJ's unique monetary experiment that attempted to crush yields across the curve and try to convince the public that its massive money printing will boost economic activity and prices.

"Among the BOJ's policy tools, the priority will likely shift more towards interest rates and away from huge bond purchases," said one of the sources on condition of anonymity.

The Nikkei reported earlier on Wednesday that the BOJ will put more emphasis on negative rates as a tool for future easing.

The BOJ is unlikely to abandon its current base money target, which is the amount of money it commits to print each year, or adopt an explicit cap on long-term rates, they said.

Still, by shifting its policy focus to negative rates, the BOJ hopes to dispel growing market views that the unpopularity of negative rates among the public would discourage it to cut rates, even if it would arrest unwelcome rises in the yen.

A prolonged period of indecision by the Federal Reserve could undermine the dollar and push up the yen, which has already surged nearly 17 percent so far this year, pressuring Japan's export machine.   Continued...

A businessman walks past the Bank of Japan (BOJ) building in Tokyo, Japan, March 23, 2016.   REUTERS/Toru Hanai/File Photo