Chain Reaction of Commercial Banks

Commercial banks in Japan began to take defensive measures against Kuroda bazooka volume 3. Few days after the announcement of Bank of Japan to introduce negative rate policy, commercial banks lowered their inertest rate of deposit as in a chain reaction. Although Tokyo Stock Market rallied on Monday, situation of volatile international economy showed no sign for optimism. It is not clear whether the depositors are turning on consumption.

Yokohama Bank and Hachijuni Bank decided to lower the annual interest rate of fixed deposit for one year or shorter from 0.025 to 0.020. The rate became the same as that of ordinary deposit. Depositors cannot have any advantage of choosing fixed rate, which rate has been always higher than ordinary deposit.

Resona Bank reviewed its rate of fixed deposit for two to five years to annual 0.025% with reduction of 0.005% or 0.025%. Sony Bank, specialized to internet banking, dropped the rate of ordinary deposit from annual 0.020% to 0.001%. With Sony’s rate, ¥100,000 deposit for a year can produce only ¥1 of interest. Providing no benefit with the depositors, bank account becomes wallet. Shizuoka Bank closed its campaign for fixed deposit with interest of 0.330%, which had been scheduled until the end of February. All of those actions were made in a day. It is possible that mega banks are following the trend.

The interest rate of long-term debt is declining. In Tokyo market, national bond rate temporally marked record low of annual 0.050, caused by active buying of investors who predicted higher price with lower rate in the future. Daiwa Asset Management announced on Monday that it would stop application for some funds, which would be operated with national bond. It is likely that interest rate of housing loan will be further lowered.

With expectation to exporters like steel or machine makers, Tokyo Stock Market recovered its vigor with ¥17,865 of Nikkei Average. However, stock price of major banks significantly dropped by over 5%. Even Japan Post Bank declined to the lowest, since the listing to TSM last November. One economist indicated a possibility that negative rate policy would cause three megabanks losing their net income by 5 to 10%. Before the introduction of the policy on February 16^th, investors are foreseeing what is happening in the future.

It is a common notion that commercial bank is circulatory organ of Japanese economy and megabanks are too big to fail. Deterioration of profit of commercial bank may lead to burden on depositors. As long as no preferable target for investment is found, depositors may turn their back to the banks and keep money in their wallet.