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2016 Vol.2
Was adopting a negative interest rate policy necessary? We need to escape from the discussion on escaping


With the adoption of ‶Quantitative and Qualitative Monetary Easing with a Negative Interest Rate,” a negative interest rate of -0.1% is being applied to some funds deposited in the Bank of Japan’s current accounts. In response, yields of government bond have fallen further, with yields on bonds having maturities up to 10 years entering negative territory. At the same time, there has been a further flattening of the yield curve whereby the longer the maturity, the greater the decline in interest rates. The negative interest rate policy is having a marked effect but has not been well received. First, the Bank of Japan put forward a quantitative target of expanding the balance of funds outstanding in its current accounts̶but simultaneously applying negative interest rates to these balances is at odds with the stated aim. Also, it appears that unanticipated negative interest rates in the financial markets are creating obstacles to the smooth operation of their financial intermediation and settlement functions. Further, a scarcity of stable investment options that are necessary to build assets for the future has emerged. Was the adoption of a negative interest rate policy necessary in the first place? Unconventional monetary policy was introduced to escape deflation, and has at last reached the stage of negative interest rates. However, the Japanese economy is not going to become healthy just because prices rise by 2%. Indeed, there are concerns that real incomes will stagnate and personal consumption will turn downward. Therefore, opinions such as those advocating postponement of the consumption tax hike are coming to the fore. What we should aim for is not an escape from deflation, but price stability such that prices neither rise nor fall. If we were not bound to the 2% inflation target, there would be no need to maintain the negative interest rate policy or the policy of quantitative and qualitative monetary easing. What we need is not a negative interest rate policy, but an escape from the discussion on escaping deflation.