Japan Press Weekly

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2016 January 27 - February 2 TOP3 [ECONOMY]

BOJ’s minus rate policy underlines failure of Abenomics

The Bank of Japan on January 29 decided to lower the interest rate on current accounts that financial institutions hold at the BOJ from the current 0.1% to minus 0.1%. The Bank will adopt a negative interest rate for the first time in Japanese financial history.

The decision, however, is very unusual as four of the nine BOJ Policy Board members opposed to further easing its monetary policy.

Under negative rates, financial institutions will have to pay interest. Thus, in order to avoid losing money, banks may decrease the amount of their deposits in the BOJ and increase lending to private companies. This is the aim behind the idea.

Japanese Communist Party Policy Commission Chair Koike Akira at a press conference held following the BOJ announcement commented, “The new monetary-easing policy epitomizes the failure of Abenomics.”

He said, “The BOJ may expect that the policy could help expand the amount of money in circulation, but the problem is that there has been no demand for this in Japan.”

Government data released on the same day shows that household spending in December dropped by 4.4% compared with the same month in the previous year. Pointing to this data, Koike stated that ever-decreasing wage levels, sluggish personal spending, and the aftermath of the consumption tax hike have been causing the prolonged low demand.

“Prime Minister Abe had insisted that Japan succeeded in getting out of the deflationary spiral. Ironically, the BOJ decision this time proves that Japan is still in the middle of a period of deflation. No matter what kind of financial policy the Bank comes up with, they will not positively affect the nation’s overall economic recovery,” said Koike.