MNI BRIEF: BOJ Eyes Two-Tier System In Required Reserves

The Bank of Japan is considering the introduction of a two-tier system in the required reserves held by financial institutions not only to support their earnings but also to activate market trading after removing the negative interest rate policy.

The BOJ is expected to pay interest rates at certain times of the required reserves and will scrap the basic balance -- a positive interest rate of 0.1% -- and the -0.1% policy-rate balance.

However, the decision to pay interest rates to some required reserves will be unfair for financial institutions, such as investment trusts and insurance firms, that do not have the required reserves, and officials are considering measures to ease this unfairness. BOJ policymakers will discuss an exit of easy policy, including the termination of the negative interest rate, at the March 18-19 meeting following hefty wage hikes announced by major firms. (See MNI POLICY: Weaker Econ Data Risk May Push March BOJ Action)