Putting an immediate end to the Bank of Japan's negative interest rate policy is imperative, according to Shigeru Ishiba, a prominent figure in the ruling party. Ishiba believes that this policy allows companies to delay efforts aimed at enhancing productivity while maintaining exceptionally low borrowing costs.
Describing negative interest rates as an “extreme policy that shouldn't exist in the first place,” Ishiba mentioned that ultra-low rates are only justifiable during times of crisis.
When directly asked whether he was indeed suggesting that the Bank of Japan should promptly cease negative rates, Ishiba affirmed, "Yes, I believe so."
Since 2016, the Bank of Japan has maintained short-term rates at -0.1% and 10-year yields close to zero, aiming to curb economic growth and stimulate inflation toward a 2% target.
"When the interest rate, or the price of money, is zero, the market function doesn't work properly," Ishiba stated in an interview with Reuters on Monday. This results in an inefficient allocation of funds and doesn’t prompt companies to enhance their productivity.
Emphasizing the urgency of quickly ending negative rates, Ishiba acknowledged the potential challenges in the Bank of Japan effecting this change promptly. Political pressures may arise, as there could be a push to keep costs low for financing an anticipated extensive spending package to rebuild areas affected by the January 1 earthquake.
Despite inflation surpassing the 2% target for over a year and the anticipation of robust wage growth, there is a prevailing expectation among market players that the Bank of Japan might terminate negative rates in March or April.
Ishiba has persistently criticized the extensive monetary stimulus implemented by former Governor Haruhiko Kuroda, a key component of former Prime Minister Shinzo Abe's "Abenomics" policy aimed at fostering economic growth.
According to Ishiba, the recent uptick in inflation is likely linked to a depreciating yen, leading to increased import costs, rather than a surge in economic growth resulting from decades of ultra-low interest rates.
"We need to seriously consider how long we can continue with ultra-low interest rates," he said. Ishiba calls for a thorough examination of the potential impact of future rate hikes, emphasizing the need to assess not just the financing costs of Japan's substantial debt but also the broader implications on the overall cost of the country's debt.
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