Japan's finance industry lobbies against deeper BOJ negative rates

TOKYO (Reuters) - Japan's finance industry continued to lobby against any deepening of negative interest rates by the central bank ahead of a closely-watched rate review next week, with the head of the life insurance lobby warning on Friday that rate cuts would do more harm than good to the economy.

Sources have told Reuters the Bank of Japan will make negative rates a centrepiece of future monetary easing at next week's rate review by shifting its prime policy target to interest rates from the pace of money printing.

Akio Negishi, chairman of the Life Insurance Association of Japan, said he did not see the need for the BOJ to ease again any time soon with the economy on a steady recovery track.

"Negative rates squeeze financial institutions' profits. Sharp declines in long- and super-long bond yields have more demerits for the economy as it hurts public sentiment" by fuelling uncertainty over future pension payments, he told a news conference.

"Given the current state of the economy, I don't think the BOJ needs to deepen negative rates," Negishi said, adding that his comments on BOJ policy were his views as president of Meiji Yasuda Life Insurance Co.

The head of Japan's banking lobby also voiced opposition to deeper negative rates on Thursday, saying that negative rates have had little positive effects on the economy.

"We haven't heard from companies that (negative rates) are spurring positive activity," Takeshi Kunibe, chairman of the Japanese Bankers Association, told a news conference. He added that the industry may need to consider charging fees for deposits if the BOJ were to deepen negative rates.

The finance industry's criticism on negative rates is in contrast to a growing acceptance over the policy among politicians. Japan's top government spokesman said negative rates have had some merits for the economy.

An adviser to Prime Minister Shinzo Abe said on Friday the benefits of the negative rate policy are "very big" as it encourages corporate debt issuance and lowers mortgage rates.

In January, the BOJ decided to add negative rates to its massive asset-buying programme in a renewed effort to accelerate inflation to its 2 percent target.

But the move has drawn criticism from financial institutions for squeezing their already-thin margins. Some academics warn that negative rates may dampen consumer sentiment by making households wary that their pension and insurance payments may be eroded by ultra-low rates.

(Additional reporting by Fuse Taro and Stanley White; Editing by Jacqueline Wong)

By Leika Kihara and Taiga Uranaka