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Kuroda again comes under fire over negative rates

BOJ chief acknowledges criticism of controversial policy but also highlights its benefits

Mr Kuroda before an Upper House financial committee meeting of Parliament in Tokyo last week. He blames "excessive" negative sentiment among investors, rather than the BOJ's policies, for the recent falls in stock prices.


BANK of Japan (BOJ) governor Haruhiko Kuroda was back "in the dock" on Monday when he was again summoned to appear before a parliamentary committee to defend the central bank's controversial negative interest rate policy which went into effect last week and which has sparked widespread criticism.

Mr Kuroda played what analysts termed a "defensive wicket" by highlighting what he identified as the benefits of the policy whereby the central bank imposes a charge on a portion of reserves deposited with it by commercial banks rather than paying them interest on their money.

He stressed that interest rates on mortgage and other bank loans had been reduced - with potential benefits to the economy - since Feb 16 when the policy took effect. And he blamed "excessive" negative sentiment among investors, rather than the BOJ's policies, for the subsequent falls in Tokyo stock prices.

But Mr Kuroda is seen as being vulnerable, especially as the decision to introduce negative rates, taken at the end of last month, scraped through the BOJ's governing Policy Board by a hairline majority of only five votes to four. Some members of the Policy Board have openly criticised the decision.

On top of that, analysts noted, the parliamentary opposition, led by the Democratic Party of Japan (DPJ), has been targeting figures in the Liberal Democratic Party-led administration of Prime Minister Shinzo Abe in an attempt to undermine the LDP's chances of success in a key upper house election due later this year.

Akira Amari, former minister for economic revival, stepped down recently after DPJ leaders and other opposition politicians demanded his resignation over a political funding "scandal". Mr Kuroda, while not a member of the government, was a personal pick of Mr Abe, and is a former finance ministry official.

In parliament on Monday, Mr Kuroda acknowledged criticism of the negative interest rate policy that he promoted after massive quantitative easing (QE) of monetary policies introduced by the BOJ when he took over the helm at the beginning of 2013 failed to achieve the 2 per cent inflation target he aimed for.

Katsumasa Suzuki, a prominent member of the DPJ, reportedly told Mr Kuroda that some shops are urging consumers to buy safes to "protect against negative rates", pointing to fears among households and companies that they may be penalised for keeping money as bank deposits.

"It is true that there have been various reactions from the Japanese people," the BOJ governor said. But he also claimed that there had been benefits from the negative interest rate policy. "It has already shown its effects in terms of interest rates. I am convinced that such rises in bank lending would have a positive effect on Japan's economy," he added, while noting that bank lending rose by 2.3 per cent in the year to January, marking the 52nd consecutive month of increase.

Meanwhile, economic news continued to be downbeat for Japan on Monday. Growth in manufacturing activity slowed sharply in February as new export orders contracted at the fastest pace in three years, a sign that overseas demand is deteriorating rapidly as China's economy slows, Reuters reported.

The Markit/Nikkei Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to 50.2 in February on a seasonally adjusted basis from a final 52.3 in January. But it remained above the 50 threshold that separates contraction from expansion for the 10th consecutive month.

The sub-index for new export orders fell to a preliminary 47.9 from 53.1 in January, which would indicate the biggest contraction since February 2013 if confirmed in final data.

One relatively bright spot was a slight decline on Monday in the value of the yen which was traded in Tokyo at around 113 to the US dollar - slightly below the one-week high against the greenback and the 21/2-year high against the euro last Friday.

In the light of the yen's sudden climb from earlier this year from around 123 to near 111 at one point - an appreciation which Finance Minister Taro Aso described as being "very rough" - Japan is expected to raise the issue of disorderly exchange rate shifts at the G-20 finance ministers meeting in Shanghai this week.

The yen rose some 5 per cent against the US dollar after negative interest rates were announced by the BOJ at the end of January, while the Nikkei 225 stock average fell by around 6 per cent - both movements being the opposite of what the central bank had hoped for, analysts said.

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