TOKYO: Negative interest-rate stimulus is half working in Japan, as lenders cut government bond holdings by the most in almost three years, only to hoard proceeds at the central bank. Japanese government bonds owned by banks fell 5.5 per cent in April from a month earlier, the fastest pace since June 2013, as most yields slumped below zero, Bank of Japan (BOJ) data show. Their deposits at the BOJ, where only a small part of reserves are charged fees, rose 3.4 per cent in the period. That doesn’t bode well for loan growth now riding near a three-year low.
“Banks aren’t rolling over JGBs as they mature, because of negative interest rates,” said Yoshinobu Yamada, a senior analyst at Deutsche Bank AG in Tokyo. “Funds are generally ending up in the macro balance at the central bank, which carries a zero per cent rate.”
Japanese banks’ holdings of JGBs slumped by about 43 per cent since Kuroda began bond-buying stimulus in 2013, reaching 94.7 trillion yen ($871 billion) in April, the lowest level since December 2008. With businesses and households still reluctant to borrow and spend, excess funds are flowing back to lenders’ accounts at the BOJ, where a three-tiered rate system is allowing them to park most new spare cash at zero per cent. “Companies see the introduction of negative rates as a sign of how bad the economy is,” Deutsche Bank’s Yamada said. “The reality is that rather than improving the economy, it’s worsening the sentiment of business owners.”
To be sure, the increase in lenders’ reserves is a natural consequence of the central bank’s policy of pumping 80 trillion yen into the financial system each year. Banks’ current accounts have ballooned five times since BOJ Governor Haruhiko Kuroda began his plan to buy JGBs on an unprecedented scale in April 2013 to defeat deflation.
Under the three-tier system, most of banks’ 276 trillion yen in reserves are still collecting 0.1 per cent interest, while the portion subject to negative rates is between 10 trillion yen to 30 trillion yen, according to the BOJ. That leaves the third tier – called the macro add-on balance, where zero rates are applied – growing the most. The macro balance expanded 68 per cent to 45 trillion yen in April from March.
The central bank held a near-record 315 trillion yen of the securities as of May 20, almost a third of Japan’s public debt. Holdings at so-called city banks – major lenders including Mitsubishi UFJ Financial Group Inc, Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group Inc – dropped 8.8 per cent in April from a month earlier, the central bank’s figures showed.
