The Japanese economy is a tough nut to crack: growth there had slowed down to a troubling point and the Bank of Japan under the direction of Prime Minister Shinzo Abe began a stimulus program a few years ago. With this year’s re-election of Abe, the Bank of Japan has confirmed its commitment to keeping interest rates low in order to allow the yen to relax and promote inflation.
Nevertheless, such measures have their cost. Japanese banks, in particular the smaller ones, are feeling the weight of the negative interest rates. Low interest, according to the tenets of economics, are meant to encourage consumer spending, while banks in general make profits from lending money, which isn’t that viable when interest rates are kept so low.
The executive director of the BoJ Atsushi Miyanoya confirmed that the concerns of banks are very real and that they may suffer losses if they continue to lower their interest in an attempt to compete with other banks. Considering the plans of the Bank of Japan spread ten years forward, financial businesses in Japan need to come up with profit-making plans that rely on more than lending. With over 100 local banks, Miyanoya suggested that mergers might offer a new hope for suffering businesses.
