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BOJ Governor Kuroda Considers Deeper Negative Interest Rates

Bank of Japan (BOJ) Governor Haruhiko Kuroda announced on Friday that there is potential to cut interest rates further into negative territory. However, he did not provide specific figures on the extent of the possible rate cut.

Haruhiko Kuroda, Governor of the Bank of Japan
Haruhiko Kuroda, Governor of the Bank of Japan

Yield Curve Control Explained

The BOJ utilizes yield curve control, applying a -0.1% interest rate on a limited pool of financial institutions' reserves. Additionally, the central bank guides the 10-year bond yield around 0% to support its long-term goal of a 2% inflation rate.

Potential Risks to the Banking System

Kuroda cautioned that while deeper negative short-term rates are possible, cuts to -2% or -3% could lead to significant disruption in the banking system, making such moves difficult to implement.

Importance of Government Bond Purchases

The BOJ Governor emphasized the need to continue purchasing government bonds, noting that lowering short- and long-term interest rates cannot solely rely on deepening negative short-term rates.

Kuroda's Upcoming Retirement

Haruhiko Kuroda is set to retire after completing his second five-year term as BOJ Governor in April.