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The Bank of Japan (BOJ) has studied that if the short-term interest rates are slashed further then it will reduce profits at financial institutions by several hundred billion yen, the Japanese daily ‘The Mainichi’ reported citing sources with knowledge of the matter.

Additional takeaways

The internal calculations were made when the BOJ conducted a review of its policy tools in March to make monetary easing more effective and sustainable.

The Japanese central bank considered a scenario in which short-term interest rates, currently at minus 0.1 percent, are cut to minus 0.2 percent.

The BOJ decided not to make the estimate public due to concern it would draw attention to the negative side of cutting interest rates.

A cut in short-term interest rates would lower lending rates for companies and households, meaning lower profitability for financial institutions.

Compared with major banking groups that have overseas operations, regional banks are more dependent on domestic operations and more susceptible to the BOJ’s rate cuts.