Japan's economy minister keeps focus on crisis-response, warns against deepening negative rates

Japan should focus on back-stopping struggling businesses rather than trying to spark overall demand in fighting the coronavirus pandemic, its economy minister said, suggesting the central bank should avoid pushing interest rates deeper into negative territory.

The remark by Yasutoshi Nishimura, made in an exclusive interview with Reuters, underscores the challenge Tokyo faces in supporting an economy bracing for its worst postwar slump, while preventing a renewed spike in infections. "What's most important now is to protect jobs and help businesses survive the pandemic," Nishimura said in the interview conducted on Saturday.

"We're not at a stage yet where we want to stimulate consumption and encourage people to travel a lot. Efforts to stimulate consumption should wait a bit more," he said. Nishimura made the comments when asked whether the Bank of Japan should consider measures to stimulate demand, such as deepening negative interest rates.

Japan's approach contrasts with that of Western countries that are already shifting from crisis-response to policies aimed at propping up growth. Under Nishimura's initiative, the government compiled two spending packages worth a combined $2.2 trillion to cushion the economic blow from the pandemic.

The Bank of Japan joined in by easing monetary policy for two straight months in April, focusing on steps to ease corporate funding strains. Japan slipped into recession this year and is expected to suffer an annualised 20% contraction in the current quarter, as the government's decision to declare a state of emergency in April forced citizens to stay home and businesses to close.

Under a policy dubbed yield curve control, the BOJ guides short-term rates at -0.1% and caps long-term borrowing costs around zero. It also buys massive amounts of assets to pump money into the economy.