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Economy

Bank of Japan wakes up to the downside of monetary easing

Expressions of concern over weak lenders reflect shift in priorities for central bank

Bank of Japan Gov. Haruhiko Kuroda must balance the need to push prices higher against the threat to lenders' financial health from ultralow interest rates.

TOKYO -- When the Bank of Japan began its program of monetary easing -- printing money to buy bonds -- almost two decades ago, the idea was to snap the country out of its long deflationary funk. Now the bank is waking up to the side effects: banks that are barely profitable and reluctant to lend.

Ultralow interest rates hurt banks' earnings by shrinking their interest margins. That is, the difference between how much they can charge borrowers and how much they must pay depositors. Those margins are razor thin and 70% of Japan's small regional banks posted net losses or profit declines in the April to September period this year.

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