Japan in Negotiations with Banks for Zero-Rate Loans: Government Official, Reuters Reports

TOKYO – Japan’s Ministry of Finance is in discussions with major banks to secure loans for the government at a zero interest rate, with auctions expected to commence in October or November, according to a government official familiar with the negotiations.

The government has approached lenders to explore the possibility of submitting tender offers with negative rates as part of its short-term special accounts borrowing program. However, Japan’s large banks have expressed challenges in submitting such negative rate offers, leading the government to propose a “zero floor” on interest rates instead, as noted by the official, who requested anonymity due to the sensitivity of the matter.

Currently, the minimum tender offer rate stands at 0.001 percent. The government’s strategy follows the Bank of Japan’s aggressive monetary easing, which has driven yields on most Japanese government bonds below zero.

Beyond issuing bonds to finance the state budget, the Ministry of Finance raises trillions of yen annually through direct borrowing from banks, which supports short-term financing for special accounts that fund various initiatives, including municipal projects, energy ventures, and state-owned forestry efforts. Various financial institutions, including banks, brokerages, and insurance companies, participate in these tenders.

Since the Bank of Japan introduced its negative interest rate policy in February, commercial banks have generally resisted offering loans to private-sector borrowers at negative rates, even after the central bank implemented negative rates on the excess reserves held by lenders.