8. Operating in a negative-interest-rate environment

Japan’s economy moved into a phase of mild recovery beginning in late 2012. Nonetheless, the domestic economy was not strong enough to achieve the BOJ’s target of 2% annual growth in consumer prices. Outside Japan, a number of unfavorable factors—such as the slowdown of China and other emerging-market countries and a stagnant natural resources market—suggested an uncertain outlook for the world economy. Against this backdrop, the BOJ decided to introduce the policy of quantitative and qualitative monetary easing with a negative interest rate (negative interest rate policy) in January 2016, which went into effect on February 16.

This policy measure effectively pushed down the yield curve. However, the introduction of the negative interest rate policy and lower bond yields would generally reduce income in the banking sector. For SMBC’s Treasury Unit, it meant that returns on Japanese government bond portfolios would diminish in the future.

To address this situation, the Treasury Unit rebalanced the portfolios in a flexible manner to increase income while carefully watching changes in monetary policies overseas, market trends affected by political situations and economic conditions. Also, anticipating the prolonged implementation of the negative interest rate policy and lower interest rates globally, the unit expanded the eligible category of investment to include corporate bonds and emerging-market sovereign bonds on top of the existing portfolio, comprised of stocks and bonds.