TOKYO -- The Bank of Japan decided Tuesday that it will not apply negative interest rates to money reserve funds, a vehicle brokerages use to park investors' cash, in order to protect retail investors and avoid chaos in the market.
The balance of MRFs come to about 10 trillion yen ($88.4 billion). Had the amount been subject to the negative rate, it would have cost brokerages over 10 billion yen a year to make up the shortfall.
BOJ Gov. Haruhiko Kuroda explained that ensuring stability in MRFs will encourage changes in asset management behavior such as individuals putting money into stocks.
"We will help the BOJ achieve its policy goals," said Makoto Shirakawa, head of the Investment Trusts Association, Japan.
The BOJ also decided to keep about 10 trillion yen to 30 trillion yen of its total current account balance subject to the negative rate. It will reassess the category every three months to avoid expanding the targeted amount, even if the bank's total balance increases over time.
The bank will reward financial institutions that boosted lending using the BOJ's assistance program by exempting up to four times the amount of the new loans from negative interest rates. It hopes to relieve some of the burden on banks that are expanding financing efforts.
Financial institutions' criticism of the BOJ's negative rate policy "has been harsher than expected," said a BOJ source. The bank may be paving the way toward further cuts by adjusting the current framework.