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Tomoko Amaya: Ex-Vice Finance Minister’s Views on Bank of Japan and Interest Rates

On February 14, Tomoko Amaya, former Vice-Minister for Financial Affairs and International Affairs, expressed her view in a Reuters interview that even if the Bank of Japan decided to lift negative interest rates, it would be unlikely to lead to market turmoil. The photo is from the Bank of Japan. Photographed in September 2016 in Tokyo (2024 Reuters/Toru Hanai)

TOKYO (Reuters) – Former Deputy Director-General for Financial Affairs Tomoko Amaya said in an interview with Reuters that even if the Bank of Japan decides to lift negative interest rates, it is unlikely to lead to market turmoil. However, she points out that because large-scale easing has been in place for so long, people’s behavior may not be able to keep pace with interest rates. She said the Financial Services Agency and the Bank of Japan need to keep a close eye on whether financial institutions are doing well in their day-to-day operations, including managing liquidity.

There is a strong expectation in the market that the Bank of Japan will make policy revisions, including ending negative interest rates, in March-April. Amaya pointed out, “It is extremely abnormal for the financial system to be in a state where there are no interest rates.” Regarding the impact on the financial system due to the lifting of negative interest rates, he predicted that “funding in the market has not been developed based on the assumption of low or zero interest rates, so it is unlikely to lead to market turmoil.”

However, as large-scale easing has been in place for a very long period of time, “we have to be careful that people’s behavior may not be able to keep up with what will happen with interest rates.” “Just because the Bank of Japan ends negative interest rates doesn’t mean all interest rates will move in the same way,” he said, adding that “no one has any knowledge of the time lag in which this will affect the market, deposit rates, and lending rates.”

The Bank of Japan also pointed out that when deciding to raise interest rates after negative interest rates are lifted, “It may be necessary to take time to confirm that market players have properly adapted to the new environment.”

As for what the Financial Services Agency and the Bank of Japan need to be careful about when negative interest rates are lifted, Mr. Amaya said, “This does not mean looking at things like liquidity management to ensure that operations can be carried out on the assumption that interest rates will rise. “Is that so?” he said. He said that the problem with Silicon Valley Bank, which collapsed in March of last year, was “ultimately a matter of liquidity operations.”

Mr. Amaya expressed caution, saying, “Japanese banks have ample deposits and their overall structure is very strong, but they are too used to an environment where they can get money for free.” Even if things are supposed to be okay theoretically, if there is a distortion or inaccuracy in the operation of even one place, it will have ripple effects.” He also said that after negative interest rates are lifted, each financial institution will have to decide what type of financing is most efficient.

Amaya praised the Bank of Japan’s large-scale easing since April 2013 as having brought stability to the Japanese economy, but pointed out that “the side effect was that the period of large-scale easing was extremely long.” He said, “Because it’s been so long, the hurdles for returning to a state where there are interest rates have become very high.”

Mr. Amaya said, “The time is drawing near when we can return to normal banking business,” and that after negative interest rates are lifted, “Will the real economy, which has become accustomed to free funds, be able to move to businesses that generate profits that exceed the cost of funds?” becomes important.”

Mr. Amaya joined the Ministry of Finance (currently the Ministry of Finance) in 1986. He was involved in financial supervision and international financial regulation at the Ministry of Finance and the Financial Services Agency. He served as Deputy Director-General for International Affairs and Supervision Bureau of the Financial Services Agency, and served as Deputy Director-General for Financial Services and International Affairs from July 2021 to July 2023. He currently serves as an executive advisor at the Norinchukin Research Institute.

The interview was conducted on the 13th.

(Takahiko Wada)

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2024-02-14 03:42:00
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