Fitch Ratings expects the Bank of Japan to further deepennegative interest rates by the end of 2017, noting that the central bank'slatest measures couldadd to the risksfaced by financial institutions.
The BOJ on Sept. 21 did not revise its interest rates butdecided to introduce a new policy framework to target 10-year interest rates.Among other things, the central bank said it will continue to apply a negativerate of 0.1% to the policy rate balances in financial institutions' currentaccounts with the central bank.
Fitch said Oct. 2 that the measures are not likely toimprove bankprofitability, which is being eroded by subdued loan demand, strengthening ofthe yen and a steady decline in net interest margin. The rating agency said thepotential for unintended consequences is expected to increase as the centralbank's policy measures become more complex.
The rating agency, therefore, expects the BOJ to further cutthe policy rate to minus 0.5% by end-2017 from minus 0.1%, thus addingadditional pressure on banks' net interest margins.