The Bank of Japan is studying ways of cutting rates further into negative territory while keeping yields on long- and short-term bonds from narrowing too much, Reuters reported Sept. 12, citing sources familiar with the central bank's thinking.
Policymakers are considering tools they could adopt in response to an economic slowdown amid global trade tensions, with deepening short-term negative rates the most likely option, the sources said.
However, lowering short-term rates further into negative territory could result in a drop in long-term yields, eroding financial institutions' margins.
BOJ Governor Haruhiko Kuroda recently said deepening negative interest rates remained on the table and that the central bank will adopt the "most appropriate" easing measures, taking into account their impact on financial intermediation or market functioning.
The BOJ is set to meet Sept. 18 and 19, with the central bank expected to hold rates unless the yen registers surprise gains following the European Central Bank's much-anticipated stimulus package, that included a pledge to restart bond purchases.
The U.S. Federal Reserve is due to announce its monetary policy decision Sept. 18.
