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TOKYO (Reuters) - The Bank of Japan (BOJ) is quietly walking back its unpopular negative interest rates policy with a controversial scheme designed to drive mergers among weaker, smaller lenders, a move some insiders see as a risky deviation into industrial reform.
As COVID-19 adds pain for regional banks suffering from years of ultra-low interest rates, the BOJ this month unveiled a plan to pay 0.1% interest on deposits held by lenders that cut costs, boost profits or consolidate.
The programme means the BOJ will for the first time offer payouts to a specific industry with the aim of driving reform in that sector. Critics warn such policy should be directed by elected officials, not central bankers.
The decision highlights how Kuroda's defense of his stimulus policies - and his view the cost of prolonged easing is manageable – is crumbling, forcing him to pay the price for his radical measures with an even more controversial programme.
The policy was unpopular from the outset. Just eight months after its launch in 2016, the BOJ was forced to set a target for 10-year bond yields to avoid excessive falls in long-term rates.
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