BOJ deputy propounds negative rate benefits, urges gov't to speed up reforms

The Bank of Japan's (BOJ) Deputy Governor Hiroshi Nakaso said Thursday that its negative interest rate policy would help increase investment and business opportunities and help the nation escape a protracted spell of deflationary pressure.

With private financial institutions facing potential losses in profits and the BOJ's surprise negative interest rate move failing to stem the yen's appreciation, Nakaso, talking to a group of business leaders in Naha, Okinawa Prefecture, said that new growth avenues would open up as a result of the BOJ encouraging businesses to not park their money in the central bank.

"Financial institutions may want to properly consider this point, and we do hope they will proactively explore potential borrowing needs, thereby creating new business opportunities," Nakaso said, with regard to the bank's notion that boosting private demand would combat low interest rates and create a favorable growth environment for banks and other businesses.

Nakaso underscored the fact that the BOJ's latest minus 0.1 percent interest rate policy was only applicable to around 10 trillion yen (87.58 billion U.S. dollars) of a total of 260 trillion yen in reserves held at the bank. He also said that it would be virtually impossible for the deposit interest rate to turn negative, as such instances had barely been seen in countries in Europe with lower rates than that of Japan.

The BOJ's second-in-command also called for businesses and markets to not view current volatility in global financial markets as being overly negative, stating that economic fundamentals here remained sound, despite the latest CPI reading being flat and the overall economy contracting in the last quarter.

"Although global financial markets have been volatile since the turn of the year, I believe there is no need to be too pessimistic as the fundamentals of Japan's economy have been firm," Nakaso said.

Nakaso said however that the bank's reflationary target and the policies it has unrolled to attempt to achieve it, must be a combined process with the government's structural reform proposals.

"Monetary policy to overcome deflation and the structural reform to raise the potential growth rate must be pursued in tandem to bring Japan's economy back on track toward sustained growth," he said, while suggesting the government needed to do more to actuate its reform rhetoric.

"Now that the BOJ has taken monetary easing one step further, I hope the third arrow of Abenomics, the growth strategy, will fly higher and faster," Nakaso said, with regard to Prime Minister Shinzo Abe's blend of economic policies, including structural reform of which, in the face of a shrinking and aging population, is essential to countering the potentially huge impact to the economy a rapidly declining workforce will have.

Along with a largely flat inflation gauge and economic malaise associated with a drop in consumption and sluggish exports, the latest data released at the end of last month showed that Japan's population declined for the first time in almost a century in 2015, compounding the government's concerns about the nation's mounting demographic woes.

The latest census revealed that the population in Japan had dropped for the first time since the survey began in 1920, and while Japan remains the world's 10th-largest country, is the only country among the top 20 whose population is declining.

Japan's National Institute of Population and Social Security Research has said that the declining birthrate will lead to the nation losing one-third of its population by 2060, while the United Nations has said it expects the population to shrink to 83 million by 2100.

The knock-on effect of the slumping birthrate and welfare costs associated with an aging society, will be a drop in gross national income, which accounts for around 15 percent of the global total, to 5.2 percent in 2050 and 1.7 percent in 2100, economists have estimated.

Nakaso maintained Thursday that the instituting of new systems and mechanisms to enhance society's productivity should be a key part of the government's reform policies.

"I very much urge the government to continue committing to such structural reform without loosening the reins," he said. Endit