Japan ex-cabinet advisor opposes early end to negative rates

By Tetsushi Kajimoto and Yoshifumi Takemoto

TOKYO (Reuters) - A former adviser to late Japanese Prime Minister Shinzo Abe on Sunday voiced opposition to ending negative interest rates any time soon, saying premature action by the central bank would push the economy back into deflation.

Speculation is rife that the Bank of Japan may ditch negative rates as early as March or April given expectations that major firms will offer higher pay rises at annual spring labour-management talks due to wrap up March 13.

However, small firms, which conclude wage talks by June, have a high ratio of workers' share of corporate profits, making it difficult to raise wages further.

"While uncertainty is high, (I) oppose (ending negative rates.) It's too early," Etsuro Honda, former special advisor to the cabinet, told Reuters.

"Negative rates are used for inter-bank operations, which apply risk premiums when it comes to corporations where no one's asking for borrowing with negative rates," he said.

Honda still wields influence with policymakers and lawmakers.

Last week, he was invited to lecture a gathering of lawmakers led by Sanae Takaichi, a former policy affairs chief at the ruling Liberal Democratic Party and seen as potentially Japan's first female prime minister.

Honda was an architect of the stimulus policy dubbed 'Abenomics' - a mix of bold monetary easing, flexible fiscal policy and reform, which helped the economy escape more than a decade of deflation. However, the policy has failed to achieve the central bank's 2% inflation target.

(Reporting by Tetsushi Kajimoto; Editing by Toby Chopra)