TOKYO- A Bank of Japan scheme introduced to support smaller lenders hurt by its ultra-low interest rates has perversely pushed up short-term borrowing costs, further complicating the central bank’s plans to eventually ditch easy monetary policy.
Years of ultra-low rates have squeezed profits of regional lenders and stoked fears of a banking crisis, forcing the BOJ to launch in March a program that pays 0.1 percent interest on deposits parked by regional banks that consolidate or cut costs.
That prompted smaller banks to aggressively tap funds from the money market to shift into BOJ accounts, pushing up the benchmark rate close to 0 percent in defiance of the central bank’s policy to guide short-term rates around -0.1 percent.
In an unprecedented move, the BOJ decided on Tuesday to tweak rules of the reward scheme just eight months after its introduction.
