Admittedly, it is true that an interest rate of minus 0.1 percent is applied to current account balances at the Bank, but in practice, as I just explained, a negative interest rate is applied only to the “Policy-Rate Balance.” At the start of the negative interest rate policy, the balance amounts to about 10 trillion yen, consisting of a small portion of the total current accounts outstanding of about 260 trillion yen.
Therefore, an adverse impact on financial institutions’ profits will be largely mitigated while the negative interest rate policy will powerfully produce its intended effects of pushing down the short end of the yield curve. This is because prices of any new financial transactions such as JGB transactions are determined based on a “marginal” cost, as economic jargon puts it.