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BOJ's Negative Rate Shock: Board Divided
15 Jul
Summary
- Some board members found the negative rate policy half-baked.
- Dissenters feared a currency war with Europe.
- The policy faced resistance due to potential banking system strain.
Minutes released on Wednesday revealed significant internal dissent within the Bank of Japan regarding its 2016 decision to implement negative interest rates. The policy, pushed by then-Governor Haruhiko Kuroda, was approved by a narrow 5-4 vote, underscoring the resistance faced by Kuroda.
Several board members expressed strong reservations. Takehiro Sato warned of a potential currency war with Europe due to competitive devaluations, while Koji Ishida doubted the impact on lending. Sayuri Shirai described the proposal as "half-baked" and prepared in haste, questioning the necessity of such a radical step.
Takahide Kiuchi voiced doubts about the feasibility and economic impact without thorough deliberation. The introduction of negative rates, charging 0.1% on a portion of financial institutions' deposits at the BOJ, surprised markets as Kuroda had previously ruled it out. The BOJ eventually ended its negative rate policy and other stimulus measures in 2024.
