TOKYO (Reuters) - The Bank of Japan’s new scheme targeting regional lenders is not directly tied to monetary policy and will not erode the central bank’s control over interest rates, its policymaker Seiji Adachi said on Thursday.
The BOJ unveiled on Tuesday a scheme aimed at incentivising regional lenders to consolidate, a move that echoes growing concern over the health of Japan’s banking system.
Adachi countered the view, held by some market players, that the 0.1% interest the BOJ will pay to applicable lenders could push up market interest rates and make it difficult for the bank to meet a pledge to guide short-term rates at -0.1%.
“Even with the introduction of this scheme, the BOJ won’t lose control over policy rates,” said Adachi, the first board member to comment on the scheme.
“The new scheme is aimed at incentivising financial institutions to boost their financial standings,” he told a briefing. “It’s something different from monetary policy.”
Under a policy dubbed yield curve control, the BOJ guides short-term rates at -0.1% and long-term yields around zero to prop up growth and inflation.
Years of ultra-low rates have hurt margins at regional lenders, which is also feeling the strain from COVID-19.
Analysts say the new scheme is effectively a subsidy for regional lenders hit by the BOJ’s negative rate policy.
“The additional 0.1% interest offered for deposits at the BOJ is substantial, given the 0.14% average return on assets for all listed regional banks in the fiscal year ended March 2020,” said Moody’s Japan analyst Tomoya Suzuki.
BNP Paribas estimates that regional lenders will receive a combined 40-50 billion yen ($380-$475 million) from the BOJ.
“This scheme aims to mitigate the side-effect of the BOJ’s negative rate policy,” BNP Paribas analysts said in a research note.
“But that doesn’t necessarily mean the BOJ will soon shift away from negative rates. Rather, it may be bracing for a prolonged period of negative rates.”
($1 = 105.1600 yen)
Reporting by Leika Kihara; Editing by Chang-Ran Kim and Stephen Coates
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