KUMAMOTO, Japan- Bank of Japan board member Hitoshi Suzuki on Thursday warned of the potential dangers of ramping up monetary stimulus, saying further declines in borrowing costs could hurt consumers by prompting commercial banks to charge fees on deposits.
Suzuki, a former commercial banker turned BOJ policymaker, said the BOJ needed to pay more attention to the health of Japan’s banking system in guiding monetary policy, given the rising strains on financial institutions from years of ultra-low interest rates.
“If the BOJ were to consider and implement specific monetary easing measures, it will take action deemed appropriate at the time while weighing the benefits and demerits of each step,” Suzuki said in a speech to business leaders in Kumamoto, southern Japan.
“Once the financial system destabilizes, it will become very difficult to achieve price stability,” he said.
The BOJ is in a bind. Years of aggressive money printing have crushed long-term interest rates and hurt financial institutions’ profits by narrowing the margin it earns from borrowing cheap funds and lending at a higher rate.
It has also left the BOJ with little ammunition to fight the next recession, at a time other major central banks seek to expand stimulus to head off the effects of the bitter US-China trade war.
Suzuki said if borrowing costs fell further, financial institutions could try to mitigate the pain by charging fees on bank deposits.
“If bank deposit rates effectively turn negative, it could hurt the economy by cooling consumer sentiment,” he said.
Under a policy dubbed yield curve control, the BOJ guides short-term interest rates at -0.1 percent and the 10-year government bond yield around 0 percent via heavy asset buying to achieve its elusive 2 percent inflation target.
The BOJ’s nine-member board has been split between those like Suzuki, who are worried about the rising cost of prolonged easing, and reflationist-minded members who see more room to ramp up stimulus to accelerate inflation.
Meanwhile, Japan is considering lowering the 10 percent ownership threshold at which foreigners are required to report stakes in domestic companies, two officials said, as Tokyo looks to better monitor Chinese investment in areas related to security.
Such a move would follow similar steps taken by the United States and European countries in recent years and reflects growing unease in Japan about the possibility that Chinese state-backed companies could gain access to key technology.
While Japan can’t explicitly target a single country under the reporting rules, the move would in effect enable closer monitoring of Chinese investment, the official said.
Under current rules, a foreign entity is required to report ownership in a Japanese firm once it plans to take at least a 10 percent stake. The change would see that percentage lowered, although the new threshold is yet to be finalized, the officials said.
The government is taking what appears to be an initial step by changing how the current 10 percent threshold is calculated, according to a document on the finance ministry’s website.
From October, its 10 percent threshold would only apply to shares with voting rights, rather than all outstanding shares presently, which means an effective tightening in the reporting criteria.
Japan, the world’s third-largest economy, has been on a push to welcome foreign direct investment since Prime Minister Shinzo Abe took his office in 2012.
The balance of the inward direct investment has steadily increased and reached 30.7 trillion yen ($291.30 billion) at the end of 2018, according to government data. – Reuters