BoJ's relief plans for financial institutions provide scope for further rate cuts

Bloomberg reported on its website earlier today that the Bank of Japan is considering expanding its negative rate policy to bank loans and could cut rates further. The move would provide relief to financial institutions by reduce the pressure the negative rates are putting on the banking sector. It would also effectively provide scope to further lower the deposit rate.

The yen skidded by more than 1 percent to a 2-1/2-week low against the dollar on Friday after the report. The yen has gained about 10 percent against the dollar since the BOJ announced that it was adding negative interest rates to its stimulus program at the end of January, a step that would usually be expected to weaken a currency.

BoJ is under pressure to act in view of the recent JPY strength. The BOJ's next two-day policy review ends on April 28. The yen weakness was probably only a first taste of the speculation in the run-up to the BoJ meeting next week.

"If they (the BOJ) were to have some sort of a subsidy policy for the banks, that would allow greater room for policy rates to go lower," said Alvin Tan, a Societe Generale currency strategist in London.