0% interest rate, Japanese people still rush to deposit money in banks

Two of Japan's biggest banks are now paying almost no interest on customer deposits, Bloomberg news agency reported.

According to the latest business results report, the average interest rate that Mitsubishi UFJ and Mizuho paid to depositors fell to 0.00% for the first time in the nine months ended December last year, from 0.03% in the same period last year.

The reality is that banks in Japan are cutting interest rates to unprecedented levels to minimize the negative impact on profit margins since the Bank of Japan (BoJ) adopted negative base rates a year ago.

Japanese banks offer 0% interest rates but still have many depositors. Photo: Internet

The BoJ uses interest rates below zero to counter deflationary pressures, encouraging consumers to spend and businesses to borrow to invest. It is also seen as a way to control the appreciation of the Japanese yen, a problem that has often caused trouble for the country's exporters.

Mitsubishi UFJ and Mizuho said they had no plans to charge retail deposit fees, a sign that the banks would continue to face pressure on their profitability. A Mizuho spokesman said interest rates would continue to fall and there was no indication that the trend would reverse.

Another major Japanese bank, Sumitomo Mitsui, had a deposit rate of 0.01% in the nine months to December 2016.

Despite ultra-low interest rates, deposits continue to rise at Japanese banks as companies and households choose to save money rather than invest or spend it, a setback for Japanese Prime Minister Shinzo Abe’s growth-boosting economic policy known as Abenomics.

Deposits in Japan’s banking system rose 4.5 percent in January, outpacing a 2.6 percent increase in loans, the Bank of Japan said Wednesday. Deposits now outnumber loans by 224 trillion yen ($2 trillion), a record gap that is larger than Italy’s gross domestic product.

“Savings continue to flow into banks despite low interest rates,” said Masahiko Sato, an analyst at SMBC Nikko Securities. “This shows that they (the BoJ) have no way to stop this.”

Mr. Sato also said that Japanese banks should step up sales of investment products to improve profitability.

According to Diep Vu/vneconomy