Kuroda says markets would have been worse without negative rate

[TOKYO] The nation's financial markets would have been in worse shape if the Bank of Japan had not adopted a negative interest rate, said Governor Haruhiko Kuroda, rejecting suggestions the new policy has been counterproductive.

"I really don't think that the introduction of the negative interest rate backfired or caused the yen to appreciate and stock markets to decline in Japan," Kuroda said during a question and answer session at Columbia University in New York.

"If anything, I can say that if we didn't introduce the QQE with the negative interest rate, financial markets in Japan would have been even worse."

The yen has rallied almost 11 per cent since Jan 29, when the BOJ announced it would charge financial institutions for a portion of the funds that they park at the central bank.

The benchmark Topix stock gauge has fallen 5 per cent while the banking index has plunged 15 per cent. Although BOJ policy has been the subject for debate among investors, weaker global growth, changes to the outlook for US interest-rate hikes and uncertainties in China and emerging markets have all been influential.

Mr Kuroda, who is in the US for spring meetings with the International Monetary Fund and talks with colleagues from Group of 20 nations, reaffirmed his belief that his monetary policy is having its intended effects and will in time spur inflation to a 2 per cent target. The BOJ will add to stimulus without hesitation if needed, he said.

The governor also reiterated that the BOJ isn't targeting currency markets with its policies.

It isn't correct to consider the negative rate as a tax on banks or the use of money, said Mr Kuroda. The governor added that the policy won't cut profits at banks excessively, and ultimately will help them when it contributes to inflation in Japan.

Responding to concern that the BOJ may run out of bonds to buy to continue its monetary expansion program, Mr Kuroda said he sees no obstacles now. Some 60 per cent or 70 per cent of Japanese government bonds are still potentially available for the central bank to purchase, he said.

Bank of Japan Executive Director Masayoshi Amamiya, speaking in Tokyo, said the BOJ still needs to closely monitor the impact of the negative rate on financial markets.

"It is important to consider whether there are any measures that should be taken by the market as a whole so that the market is able to adapt to changes and function properly," he said. The BOJ wants to support discussions that contribute to the enhancement of the robustness of the financial markets, he said.

BLOOMBERG