BoJ to de­bate ex­empt­ing $90b in short-term funds from neg­a­tive rates

The Pak Banker - - FRONT PAGE -

TOKYO: The Bank of Ja­pan's pol­icy board is set to dis­cuss this week whether to ex­empt $90 bil­lion in short-term funds from its newly im­posed neg­a­tive in­ter­est rate, peo­ple fa­mil­iar with the mat­ter said, af­ter the se­cu­ri­ties in­dus­try warned that in­vest­ment money would be driven into bank de­posits.

Some in the BoJ are sym­pa­thetic to the re­quest, which came from the In­vest­ment Trusts As­so­ci­a­tion, the sources said, be­cause a flow from in­vest­ment to bank ac­counts would go against a push by Prime Min­is­ter Shinzo Abe and the cen­tral bank to move more of Ja­pan's im­mense sav­ings out of de­posits

and govern­ment bonds and into more pro­duc­tive in­vest­ments, to kick-start growth and de­feat stub­born de­fla­tion. But other cen­tral bankers worry that grant­ing an ex­emp­tion from neg­a­tive rates for "money re­serve funds" (MRFs) - a low-risk prod­uct bro­ker­ages of­fer in­vestors to tem­po­rar­ily park their cash - could cre­ate a trou­ble­some prece­dent as the fi­nan­cial in­dus­try seeks to shield other in­vest­ments from neg­a­tive rates, the peo­ple say.

"MRFs play an im­por­tant role in fund set­tle­ment," said one of the sources. An­other said: "I think it's only nat­u­ral (for the BoJ board) to de­bate it (at the pol­icy meet­ing on Mon­day and Tues­day)." But an­other of the sources said: "This is a touchy is­sue ... It raises the ques­tion of whether (al­low­ing an ex­emp­tion) could lead to sim­i­lar re­quests by banks." A BoJ spokesman said he could not com­ment, cit­ing a news blackout be­fore the pol­icy meet­ing. The de­bate high­lights the dif­fi­cul­ties fac­ing the BoJ af­ter its Jan. 29 de­ci­sion to push a key pol­icy rate below zero for the first time by im­pos­ing a 0.1 per­cent charge on some of the ex­cess re­serves fi­nan­cial in­sti­tu­tions park with the BoJ. The de­ci­sion, meant to spur lend­ing and put to work more of Ja­pan's 1.6 quadrillion yen ($14 tril­lion) in per­sonal fi­nan­cial as­sets, in­stead prompted a sharp rise in the yen, steep falls in shares and caused many in­di­vid­u­als to hoard cash. The board has in­structed the BoJ's staff to dis­cuss the fea­si­bil­ity of mak­ing MRF an ex­cep­tion, sources say.

BoJ press rep­re­sen­ta­tives could not im­me­di­ately be reached for com­ment. "We ex­pect a heavy flow of funds seek­ing to avoid neg­a­tive in­ter­est rates into bank de­posits un­der the cur­rent con­di­tions," Deutsche Bank an­a­lysts Masao Mu­raki and Hiroshi Torii said in a re­cent note to clients. "Banks could ul­ti­mately place re­stric­tions on large cor­po­rate de­posits and money trusts." The se­cu­ri­ties in­dus­try shows no sign of panic about out­flows but has made clear it wants an ex­emp­tion, given the po­ten­tial dry

ing-up of funds.

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