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Japan lending rate hit record low on pressure from BOJ's negative rates

[TOKYO] Japanese lending rates hit a record low in February, the first month in which the central bank's negative interest rate policy was applied, offering signs of hope for the ailing economy but underscoring the hit to commercial banks' profit margins.

The average lending rate for the balance of loans made by domestic banks stood at 1.098 per cent in February, extending a record low for a fourth straight month, data released by the Bank of Japan showed on Wednesday.

Loans extended for longer than a year were charged an average interest of 1.084 per cent, while those for less than a year were charged 0.757 per cent, both record lows.

The rate for new loans extended in February, when the BOJ began applying negative interest rates, stood at 0.793 per cent, extending a record low for the first time in nine months, the data showed.

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The BOJ stunned markets by deciding in January to adopt a negative interest rate policy in a fresh effort to push down borrowing costs and revive an economy skirting recession.

The data underscores the central bank's view that its aggressive money printing and negative rates would push down borrowing costs, though it is uncertain whether this would prompt households and companies to boost spending.

The BOJ charges 0.1 per cent to only a small portion of excess reserves parked with the central bank to minimise the damage to financial institutions' profits.

But narrowing margins are set to hurt earnings particularly for regional banks, which are already struggling from a lack of corporate fund demand.