Bank of Japan Shirai: Scrapping 0.1% rate floor may help weaken yen

The BOJ, which guides its benchmark overnight call rate target at a range of zero to 0.1 percent, pays 0.1 percent interest on excess reserves that financial institutions park with the central bank. That effectively serves as a floor for money market rates and keeps them from falling to zero.

In a speech delivered at an economic forum in Rome, Shirai said scrapping the 0.1 percent floor may have the positive effect of pushing down short-term rates and weakening the yen.

But she warned that there was "a lack of clarity" on how the move would affect financial institutions' lending behaviour.

While the step may serve as an incentive for financial institutions to boost lending, it may erode their profits since they will lose on interest payments for funds parked with the BOJ, Shirai said.

"Such pros and cons ... need to be better understood and properly discussed in light of the impact on overall economic and price movements," she said. The speech was delivered at the closed-door forum on Jan. 12 and the text was made available on the BOJ's website on Wednesday.

The yen has fallen roughly 10 percent against the dollar since mid-November on expectations the BOJ will take bolder monetary easing steps to beat deflation.

Weakening the yen has been among the key objectives

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