Reuters – March 24, 2016 – Most Japanese companies think the central bank’s shock adoption of a negative interest rates policy has been a bad move that will hit business and consumer sentiment, a Reuters poll shows – a slap in the face for authorities who were aiming to spur economic activity.
The poll also found most firms want the government to implement further economic stimulus steps but around half were in favor of proceeding with a planned additional hike in the national sales tax, underscoring concern about Japan’s huge debt burden.
Bank of Japan Governor Haruhiko Kuroda stunned investors in January by cutting a benchmark interest rate to below zero, arguing the policy was necessary to defeat two decades of deflation and kick-start growth by encouraging banks to market cheaper loans and firms to invest their funds.
But the Reuters Corporate Survey, conducted March 3-17, found 62 percent of firms were unhappy with the decision.
In written comments, many cited the sharp strengthening in the yen and the slide in stocks that followed the announcement, while others said it only signaled the central bank had come to a deadend in terms of effective policy.
“There’s no doubt that it is an abnormal policy even though it has been adopted in other parts of the world,” wrote a manager at a rubber firm.
“It should be used only as a last resort, as it shows that there are no options left. Theory aside, the fact that it dampens consumer sentiment should not be ignored.”
The potential for it to create havoc for Japanese financial institutions was also a common complaint.
Lenders are now being charged to park a portion of their reserves at the central bank and have flagged the possibility that large corporate account owners may in future be charged a fee to keep their money in deposits.
The survey found that if rates on their corporate accounts go negative, 15 percent of companies would pull money out of the bank. Sticking their funds in safes was the most mentioned alternative.
“Companies appear to be far more pessimistic than I had thought,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute, who reviewed the survey results.
“The BOJ may want to surprise when taking action, but communicating in that way will not win support from companies. If the BOJ focuses on surprise too much, it will lean toward escalating action, which would do more harm than good to the real economy.”
The survey, conducted for Reuters by Nikkei Research, polled 513 big and mid-size firms, with managers responding on condition of anonymity. About 240-250 firms answered questions on negative rates.
But there were some signs that the policy could bring about some of its desired effects with 59 percent of firms saying they would funnel funds from lower borrowing costs to either boost capital spending or develop new businesses or embark on mergers and acquisitions.
Three-quarters of firms said they wanted to see more economic stimulus steps, underscoring downbeat business conditions that could result in a second straight quarter of economic contraction.
Firms were, however, split over the merits of a planned sales tax hike.
The tax was raised to 8 percent from 5 percent in April 2014, but the move sent the economy into recession. An additional increase to 10 percent, already delayed once, is planned for next year.
But spooked by the sputtering economy, the government has begun discussing another postponement, sources have told Reuters.
(Reporting by Tetsushi Kajimoto and Izumi Nakagawa; Editing by William Mallard and Edwina Gibbs)