Bank of Japan Governor Haruhiko Kuroda said on Friday there was room to cut interest rates further into negative territory, but could not comment on what extent.
As part of yield curve control, the Bank of Japan applies an interest rate of -0.1% to a small reserve fund of banks. It also steers the yield on 10-year bonds around 0%, as part of its efforts to sustainably meet its 2% inflation target.
Kuroda told Japan’s parliament that while it is possible to take short-term interest rates into more negative territory, reducing them to -2% or -3% would cause “huge disruption” to the banking system, making it difficult.
“It would be difficult to lower short- and long-term interest rates simply by deepening negative (short-term) rates,” Kuroda said, stressing the importance of continuing to buy government debt.
Kuroda will retire when his second five-year term ends in April.