Jul 28, 2018 (Nikkei) - The influx of cash into Japan's biggest banks and their parking of such money at the Bank of Japan are putting large commercial banks on the verge of having to pay the central bank interest on deposits there for the first time in two years.
Looking to encourage capital liquidity, the BOJ implemented the negative interest rate policy in February 2016. Financial institutions are charged 0.1% on excessive current deposits held at the central bank.
Apart from in the initial phase, the large banks have avoided paying the negative rate. This is because the BOJ divides the banks' balances into three tiers, applying positive, zero and negative interest rates to each one. Only excessive deposits are subject to the 0.1% negative interest rate.
But big banks are seeing more money pour into their safes as corporate earnings improve in Japan. And with this, deposits at the BOJ are growing as well.
The balance on deposits at major Japanese banks came to 370 trillion yen ($3.32 trillion) in May, up 57 trillion yen since the launch of the negative-rate policy. The numbers come from megabanks MUFG Bank, Mizuho Bank and Sumitomo Mitsui Banking Corp., as well as Resona Bank and Saitama Resona Bank.
A senior executive at a major bank sounds the alarm on the influx, warning that "if yen deposits continue to grow at this pace, negative interest rates could be applied sometime within this fiscal year."
By themselves, the numbers indicate healthy corporate earnings. But the money seems to be flowing disproportionately to bigger banks. While deposits at first- and second-tier regional banks have grown 7% since negative rates were introduced, they have jumped 18% at major banks during the same period.
Contrary to the hopes of the government and the BOJ, companies are choosing to keep funds on hand as deposits rather than directing them toward capital investment, said an executive at another major bank.
