Bank of Japan Policymakers Feared Negative Rates War, Hit to Bank Profits

Policymakers at the Bank of Japan tussled over the decision to adopt negative interest rates, raising a slew of concerns ahead of a close vote, according to the official summary released Monday.

Blindsiding global financial markets on January 29, the BOJ adopted negative interest rates for the first time ever, buckling under pressure to revive growth in the world’s third-largest economy. It was a close call, with five members voting for negative interest rates and four against the surprise move.

“I am concerned that the Bank’s introduction of a negative interest rate could lead to a competition with central banks in other countries, which already have adopted negative interest rates, to lower interest rates deeper into negative territory,” one member said, according to the summary of opinions at the monetary policy meeting.

Members submit a summary of their opinions to BOJ Governor Haruhiko Kuroda, who edits them before their public release. Individual members are not identified in the release.

Concerns over whether central banks would compete for the easiest policy aren’t new, with many analysts raising the possibility over the past six months or more of a “currency war” to achieve the weakest exchange rate. A weaker currency offers countries benefits in the form of more competitive exports.


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam