Japan Economy Minister: need more data to measure impact of negative rates

[February 17, 2016]  By Stanley White

TOKYO (Reuters) - Policymakers need more data on economic activity and lending to judge the impact of the Bank of Japan's surprise adoption of negative interest rates, Japanese Economy Minister Nobuteru Ishihara said on Wednesday.

Since the BOJ took such a bold step, it is important for the government to work with the central bank to ensure the economy grows and does not return to deflation, Ishihara told reporters in a group interview.

The risk of a return to deflation still cannot be ruled out, so the government should focus on implementing a stimulus package recently passed in parliament and then pass the state budget for the next fiscal year, Ishihara said.

Ishihara also said the government's plan to raise the sales tax next year to 10 percent from 8 percent is important for fiscal discipline, but implementation becomes a political decision if there is a big shock to the economy.

"The important message is deflation is not good for the economy," Ishihara said.
 

"The government and the BOJ need to work as one to make sure the economy grows and to prevent a return to deflation. We'll need to look at the economic data to judge the impact of negative rates."

The BOJ unexpectedly cut a benchmark interest rate below zero last month as volatile markets and slowing global growth threaten its efforts to beat deflation.

The central bank decided to charge 0.1 percent interest on small amount of current account deposits that financial institutions hold with it. The change came into effect on Tuesday.

Some analysts have criticized the move, because it initially failed to arrest gains in the yen or stop a sell-off in Japanese shares. Some households are also worried that savings deposit rates could dip below zero.

On the positive side, borrowing costs have fallen rapidly, and some economists say it is only a matter of time until this leads to an increase in corporate lending and mortgages.

When asked whether the government needs to compile another stimulus package, Ishihara said he wants to focus on implementing stimulus measures that were passed into law last month, which include cash handouts to pensioners.

Japan's economy shrank more than expected in the final quarter of last year as consumer spending and exports slumped.

A tight labor market and rising wages should support consumption this year, Ishihara said. However, this scenario could become less likely if China's economic slowdown persists, some economists say.

(Editing by Chris Gallagher and Kim Coghill)

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