Japan ex-economy minister Takenaka says BOJ to cut negative rates further

October 5, 2016 6:05 AM EDT

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TOKYO (Reuters) - Former Japanese Economy Minister Heizo Takenaka said on Wednesday the Bank of Japan will lower its minus 0.1 percent interest rate further to achieve its 2 percent inflation target.

Takenaka, professor emeritus of Keio University and a member of a government panel on investment, told Reuters in an interview that the BOJ's new policy framework is "orthodox" and it was not necessarily a big change.

As for pushing the rate it sets on some excess deposits that commercial banks park with the BOJ further into negative territory, he said: "The BOJ will do so without doubt."

The prominent economist added, "The important issue is that people need to acknowledge that the BOJ's policy has yielded significant effects."

The negative rate, introduced in February, hurts banks because they have avoided passing it along as a charge on deposits. The BOJ last month changed policy, shifting its target from the amount of money it pumps into the economy to trying to control the bond yield curve to keep longer-term rates above short-term rates.

Takenaka stressed that "core-core inflation", which excludes food and energy prices, rose around 1 percent last year, reversing the 1 percent decline seen before BOJ Governor Haruhiko Kuroda took the post early 2013.

"I think BOJ Governor Kuroda has been doing well, although there is strong criticism."

The central bank will use the negative 0.1 percent interest rate it charges on a small portion of commercial bank reserves to keep yields low at the short end of the curve. But the move has proved unpopular with banks.

Asked about an expected impact on Japan from the U.S. presidential election, Takenaka said that uncertainty over the currency market could increase if Donald Trumps wins.

This could cause the safe-haven yen to rise against the dollar, which would squeeze profits at Japanese companies, he said.

But he said the yen could face downside pressure if the Federal Reserve raises U.S. interest rates this year and the BOJ lowers its negative interest rates.

(Reporting by Kaori Kaneko, Yuji Aso and Izumi Nakagawa; Editing by William Mallard and Simon Cameron-Moore)



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