For the first time in six years, the Bank of Japan has applied a negative interest rate to a megabank, for a portion of Mitsubishi UFJ Financial Group's checking deposits from the end of last year through January, sources said. 

It marked the first use of the BOJ policy tool since it was introduced in 2016 and used at the beginning on reserves that financial institutions hold at the central bank.

The measure comes as deposits at private banks have increased sharply because of the BOJ's monetary easing policy and massive public financial assistance provided amid the COVID-19 pandemic.

If the application of minus interest rates is prolonged, the megabank might be forced to increase various service fees, leading to additional financial burdens on depositors.

Under the negative interest rate policy, if a financial institution's checking deposits increase above a certain level, the BOJ will collect interest at an annual rate of 0.1 percent on the deposit excess.

The monetary policy is aimed to encourage banks to use their funds for investment or lending.

But, on the contrary, individuals and corporations have continued adding to their deposits at private banks.

It was highlighted that the policy has had a smaller impact on boosting the economy than envisaged when it was enacted six years ago. 

According to the BOJ, the minus interest rate was applied for a preliminarily reported 273 billion yen ($2.4 billion) out of current account deposits of about 186 trillion yen held by major banks at the central bank.

The 186 trillion yen is an average figure between Dec. 16, 2021, and Jan. 15, 2022.

The MUFG Bank representative told The Asahi Shimbun that the bank's excess deposit is about the same (273 billion yen).

The megabank is expected to pay around 25 million yen for the negative interest rate this time. The payment amount would not be on a scale to force the bank to pass the cost on to depositors immediately.

Among major banks, the negative interest rate was applied for a 15.6 billion yen deposit of Saitama Resona Bank in October.

The MUFG Bank became the first megabank where the minus interest rate was applied, except in the early stages of the policy implementation.

The negative interest rate has often been applied to accounts associated with Japan Post Bank, regional banks and trust banks, because they have much fewer investing or lending destinations.

But even megabanks, which have higher opportunities for investments and lending, are forced to save more deposits at the central bank despite the possibility of paying the interest rate.

That is mainly because banks have collected far more deposits than expected after a variety of cash handouts were provided by the government as part of COVID-19 financial relief programs.

More than half of a total of the 100,000 yen cash handouts provided for each person is believed to have been saved at banks and have not been spent.

A string of companies that borrowed money with effectively a zero interest rate and without collateral through government relief programs also deposited it and did not use it for working capital or equipment spending.

While many corporations do not want more funds, megabanks have used the accumulating deposits for investments, such as in U.S. government bonds, to avoid being given the minus interest rate.

But unclear prospects of the movement of U.S. interest rates have made it more difficult to invest in U.S. government bonds.

As banks are suffering from small profit margins in lending and investments under the prolonged ultralow interest rate policy, they have begun to ask depositors to bear more burdens, such as paying service fees for issuing bankbooks or handling coins.

If the minus interest rate places more burdens on banks, such new service charges could be increasingly enacted.

In Europe, where a minus interest rate policy was introduced ahead of Japan, some financial institutions started to charge customers a fee for deposits.

An official associated with megabanks does not dispute that similar actions could arise in Japan.

“If the BOJ expands the negative interest rate further, megabanks might start to make interest rates for deposits effectively minus,” the official said.