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Japan Banks Welcome BOJ Inaction, Warn Against Future Rate Cuts

Taiga Uranaka and Yuki Hagiwara

(Bloomberg) -- The head of Japan’s main bank lobby group welcomed the central bank’s decision to keep interest rates unchanged on Thursday, while warning that any future cuts may be ineffective.

The Bank of Japan probably doesn’t have any measures available to offset the detrimental impact on lenders of lowering rates further, Japanese Bankers Association Chairman Makoto Takashima said at a news briefing in Tokyo.

While leaving monetary stimulus unchanged, the BOJ said it will re-examine prices and the economy at its next meeting in October, fueling speculation it may ease policy then. Japanese banks have long warned that deepening negative rates could further dent loan profitability and even reduce their incentive to lend.

Banks’ roles as financial intermediaries would diminish if their soundness deteriorates, said Takashima, who is also president of Sumitomo Mitsui Financial Group Inc.’s main lending unit. He said the remarks were his personal view and not necessarily those of the lobby group.

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Earlier, BOJ Governor Haruhiko Kuroda told reporters that his board was more positive toward adding stimulus than at its previous meeting, but price momentum is not being lost and there is no need for big changes to its policy framework now. Adjusting the negative rate is one option for additional easing, he said.

While only a small portion of banks’ reserves incur the 0.1% negative rate, the policy introduced in 2016 has driven down interest rates on loans, eating into their lending income. A cut to minus 0.3% would decrease banks’ combined net income by 500 billion yen ($4.6 billion) in the first year, with regional lenders affected the most, JPMorgan Chase & Co. has estimated.

Speculation for BOJ action is growing after counterparts in the U.S. and Europe cut rates this month. Almost half of economists surveyed by Bloomberg before Thursday’s decision expected the central bank to ease policy either this week or in October.

To contact the reporters on this story: Taiga Uranaka in Tokyo at turanaka@bloomberg.net;Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward, Katrina Nicholas

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