TOKYO — The Bank of Japan’s (BoJ) negative interest rate policy has had little positive impact on the economy and prices, over half of economists surveyed by Reuters said.
The views underline the mounting challenges facing the central bank in trying to fire up inflation to its 2% target, as years of ultra-loose monetary policy and near-zero rates have had only modest success at the cost of eroding financial institutions’ margins.
That explains why a majority of the polled economists expect the next move by the BoJ would be to taper its massive stimulus, possibly sometime next year.
It also suggests criticism over the controversial policy is spreading beyond Europe, where countries such as Switzerland are under increasing pressure to adjust its ultra-loose policy to address the demerits of negative rates.
Among the 41 economists polled by Reuters on Jan. 6-17, around 24 said the BoJ’s negative rate policy did not help the economy and prices, while 17 said they did.
“Negative rates may have had some positive effects on financial and property markets. But the side-effects, such as the hit to banks’ earnings, have also been big,” said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research.
“As a whole, we don’t think there has been much positive effect” on Japan’s economy and prices, he said.
The poll also showed 28 of 42 economists, or 67%, expect the BoJ’s next step to be a withdrawal of stimulus, up from 61% in the December poll. Those who predicted such action said it would happen sometime next year or later, the poll showed.
The ratio of those who predict the BoJ’s next move to be an expansion of stimulus stood at 33%, down from the previous month’s 39%.
“We don’t expect the BoJ to ease further in the near term,” said Arata Oto, market economist at Societe Generale Securities Japan.
“The BoJ is expected to maintain its scenario projecting a pickup in global growth, while sticking to its easy-policy bias to help the economy build momentum to hit its 2% inflation target,” he said.
That view was backed by a Reuters poll predicting that the BoJ will keep monetary policy steady and nudge up its economic growth forecast at a two-day rate review ending on Tuesday, signaling that no immediate easing was forthcoming despite lingering overseas risks.
STAGNANT GROWTH AHEAD
Under a policy dubbed yield curve control, the BoJ guides short-term rates at -0.1% and the 10-year government bond yield around 0% via aggressive asset buying.
Inflation remains distant from the BoJ’s 2% target despite years of heavy money printing, forcing the central bank to maintain a radical stimulus program despite the rising cost such as the hit to financial institutions’ profits.
Analysts polled expect core consumer inflation, which includes oil products but not fresh foods, to hit 0.6% in the current fiscal year ending in March and 0.5% the following year.
They also expect Japan’s economy to have shrunk an annualized 3.6% in the October-December quarter due to the hit from October’s sales tax hike, and rebound by a modest 0.8% in the current quarter.
Japan’s economy will likely expand 0.5% in the fiscal year beginning in April and 0.8% the following year, thanks in part to an expected boost from the government’s $122 billion fiscal stimulus package, the poll showed. — Reuters