Japanese Banks' BOJ Deposits Surpass 30 Trillion Yen... "Pivot Expectations Rise"

Deposit Balance Hits Record Low Since Negative Interest Rate Introduction in 2016

Japanese commercial banks are betting on an interest rate hike by depositing funds with the Bank of Japan (BOJ).

Bloomberg reported on the 8th (local time) that the amount of money held by major Japanese commercial banks in the BOJ's negative interest rate accounts reached 3.2 trillion yen (about 30 trillion won) as of December last year. This is the highest level since former BOJ Governor Haruhiko Kuroda introduced negative interest rates in 2016.

The Bank of Japan (BOJ) building. [Image source=EPA Yonhap News]

In 2016, the BOJ introduced the Yield Curve Control (YCC) policy, setting an upper limit on the 10-year government bond yield. If market interest rates rose above this limit, the BOJ would purchase bonds to lower rates and supply liquidity to the market. This was intended to stimulate consumption and investment, raise prices and wages, and boost the economy.

Initially, as intended by the BOJ, commercial banks avoided the -0.1% interest by investing cash in more productive areas, contributing to domestic demand activation and inflation promotion. However, when the BOJ relaxed the interest rate ceiling through additional YCC adjustments in October last year, expectations for a monetary policy pivot (policy shift) appeared to have intensified.

Naomi Muguruma, Chief Bond Strategist at Mitsubishi UFJ Morgan Stanley Securities, explained, "As the end of the negative interest rate approaches, commercial banks seem to be changing their minds because they no longer need to forcibly invest funds to exhaust deposit balances."

Yosuke Takahama, Senior Manager at the fund brokerage firm Central Tanshi, said, "The December data from last year increased expectations for a BOJ policy shift more than the temptation for commercial banks to use the money in negative interest rate accounts for interest rate arbitrage."

Meanwhile, in January last year, a BOJ board member hinted that the end of the negative interest rate was imminent by stating that "conditions for policy adjustments, including the end of the negative interest rate, are being met."

This content was produced with the assistance of AI translation services.