BOJ may need rates below zero

The leader of Japan’s main opposition, seen as likely to become premier after a general election next month, called on the central bank to push interest rates to zero or below zero to spur lending, prompting the yen to slide to a six-month low.

The remark was the latest in a string of calls by Shinzo Abe, a former prime minister and head of the Liberal Democratic
Party (LDP), pushing the central bank to go to extraordinary lengths to revive growth in an economy slipping into its fourth recession since 2000. Abe repeated that the Bank of Japan should pursue “unlimited” easing of monetary conditions until prices rise, signalling he would adopt a much tougher stance with the independent central bank than the incumbent government. “If a commercial bank leaves reserves at the BOJ they get 0.1 percent, and this is too high when you look at what the consumer gets from their savings account,” Abe told a gathering of media and business executives.

“That’s why money always flows back to the BOJ. I think the BOJ will have to use zero interest rates or even use negative interest rates to spur lending.” After months of promising to call an election “soon”, Prime Minister Yoshihiko Noda is set to dissolve parliament’s lower house on Friday, setting up a snap vote for Dec. 16.

However, opinion polls suggest Noda’s Democratic Party of Japan is heading for a heavy drubbing in the election, with
Abe’s LDP clearly in the lead.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell