The Bank of Japan’s reserve deposit interest costs have reached ¥2.71 trillion amid expectations of a rate hike to 1.25%. With the policy meeting approaching, the relationship between the possibility of a rate hike and the resulting cost burden is drawing attention.
The Bank of Japan reportedly paid a total of ¥2.71 trillion in interest on financial institutions’ accounts last fiscal year, exceeding the returns from its Japanese government bond portfolio during the same period. Reserve deposit interest costs, together with the rate set for the Complementary Deposit Facility, are contributing to higher spending as interest rates rise.
The Policy Board is expected to meet on Thursday and Friday, and a Reuters survey found that most economists expect a 0.25 percentage-point rate hike on 18 September. This could again increase interest payments on deposit balances.
The Bank’s financial data show that interest expense on excess reserves reached ¥2.71 trillion in fiscal 2025, while interest and discount income from Japanese government bonds was approximately ¥2.5182 trillion, falling short of offsetting the higher expense.
Over five and a half months, current account balances declined by approximately ¥47.1 trillion, Japanese government bonds declined by approximately ¥11.2 trillion, and total assets declined by approximately ¥18.8 trillion. As the reserve base contracts, this is also changing the structure of the interest cost burden.