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Bank of Japan (BOJ) Deputy Governor Ryozo Himino has signaled that the world is inching closer to ending its last negative interest rate regime, by putting forward a hypothesis on what might happen if real interest rates were to become positive.
While initially reiterating the BOJ's standard commitment to continue monetary easing until a sustainable inflation target is reached, Himino then outlined various potential effects that could follow an exit from real negative rates.
"Today, I would like to offer a perspective on the transition from a structure with positive real interest rates to one without, by looking at what happened to the net interest income of relevant sectors in past periods," Himino said.
Himino stated that the first interest rate hike since 2007 might not be as harmful as some fear.
Himino said that if interest rates were moved into positive territory and the impact on the corporate sector remained likely limited, households would likely benefit from increased net income. He also noted that the financial system is resilient enough to cope with this transition.
The comments were the clearest sign yet of what BOJ leadership thinks the impact of ending negative interest rates would be. These views will likely strengthen expectations among BOJ watchers that the bank will end negative interest rates by the middle of next year.