Is Japan Reconsidering Negative Interest Rates?

Bank of Japan governor Haruhiko Kuroda showed potential remorse over his negative interest rate policy today, perhaps signaling a reversal from the unprecedented monetary measures the country has taken to try and revive its economy.

While noting that the central bank would use everything at its disposal to help turn things around, Kuroda admitted that negative rates have hurt Japanese banks, and that Japan should consider this fact when determining future policy. From the WSJ:

That’s an important turn in the BOJ’s negative-rate rhetoric. While Mr. Kuroda has long acknowledged negative rates could potentially harm banks, he has been dismissive of the effects—saying they would be outweighed by a faster-growing economy. In a March speech, Mr. Kuroda said Japan’s banks were strong and it was “entirely inconceivable” that this policy would get in the way of “financial intermediation” In June he said “there is no evidence, whatsoever” that negative rates have had “any major adverse effects on the profitability of financial institutions or undermined their financial intermediation functions.”

Kuroda’s hopes for a faster-growing economy have been dashed recently, with Q2 GDP rising a mere 0.2% in the second quarter.

The Bank of Japan will meet in a couple of weeks to discuss any potential policy changes. Analysts aren’t expecting any big moves stemming from that meeting, but perhaps sentiment will change following Kuroda’s latest remarks.

We’d written recently about the dangers of negative rates on private banks, and it appears Kuroda is sobering up to these side effects.


The iShares MSCI Japan ETF (NYSE:EWJ) was inactive in premarket trading this morning. The largest ETF focused on Japanese equities has risen 2.8% year-to-date.

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