Bank of Japan adopts negative interest rate

[Abacin]

The central bank said it cut the deposit rate it pays on cash parked at the BOJ by commercial banks in excess of legally required reserves, to minus 0.1% from the previous plus 0.1%.
http://www.marketwatch.com/story/ba...precedented-negative-interest-rate-2016-01-28

Personally I think that this is senseless and scary. This will only encourage more carry trades against JPY and discourage investments in Japan. Since BOJ cut the interest rate to nearly zero, carry trades have persistently become the enemy of Japanese economy,not the deflation. No one is interested in serious investment in Japan except financial manipulation due to carry trades. When you get a low rate Japanese loan, do not think about business, think about carry trade first which is much more profitable.
When the world in the boom time, carry trades caused the outflow of Japanese capital and made Japan missing the boom; When the world in the gloom time, JPY was always in the rise to hurt Japanese exports since the whole world cut JPY carry trade positions.

 

[Aepsilons]

The central bank said it cut the deposit rate it pays on cash parked at the BOJ by commercial banks in excess of legally required reserves, to minus 0.1% from the previous plus 0.1%.
http://www.marketwatch.com/story/ba...precedented-negative-interest-rate-2016-01-28

Personally I think that this is senseless and scary. This will only encourage more carry trades against JPY and discourage investments in Japan. Since BOJ cut the interest rate to nearly zero, carry trades have persistently become the enemy of Japanese economy,not the deflation. No one is interested in serious investment in Japan except financial manipulation due to carry trades. When you get a low rate Japanese loan, do not think about business, think about carry trade first which is much more profitable.
When the world in the boom time, carry trades caused the outflow of Japanese capital and made Japan missing the boom; When the world in the gloom time, JPY was always in the rise to hurt Japanese exports since the whole world cut JPY carry trade positions.

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank's interest rate to zero may not be sufficient to stimulate borrowing and lending.

A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

Examples
An example of a negative interest rate policy would be to set the key rate at – 0.2%, such that bank depositors would have to pay two-tenths of a percent on their deposits instead of receiving any sort of positive interest.

• The Swiss government ran a de facto negative interest rate regime in the early 1970s to counter its currency appreciation due to investors fleeing inflation in other parts of the world.
• In 2009 and 2010 Sweden and in 2012 Denmark used negative interest rates to stem hot money flows into their economies.
• In 2014 the European Central Bank (ECB) instituted a negative interest rate that only applied to bank deposits intended to prevent the Eurozone from falling into a deflationary spiral.

Theoretically, targeting interest rates below zero will reduce the costs to borrow for companies and households, driving demand for loans and incentivizing investment and consumer spending. Retail banks may choose to internalize the costs associated with negative interest rates by paying them, which will negatively impact profits, rather than passing the costs to small depositors for fear that otherwise they will move their deposits into cash.

 

[Abacin]

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank's interest rate to zero may not be sufficient to stimulate borrowing and lending.

A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

Examples
An example of a negative interest rate policy would be to set the key rate at – 0.2%, such that bank depositors would have to pay two-tenths of a percent on their deposits instead of receiving any sort of positive interest.

• The Swiss government ran a de facto negative interest rate regime in the early 1970s to counter its currency appreciation due to investors fleeing inflation in other parts of the world.
• In 2009 and 2010 Sweden and in 2012 Denmark used negative interest rates to stem hot money flows into their economies.
• In 2014 the European Central Bank (ECB) instituted a negative interest rate that only applied to bank deposits intended to prevent the Eurozone from falling into a deflationary spiral.

Theoretically, targeting interest rates below zero will reduce the costs to borrow for companies and households, driving demand for loans and incentivizing investment and consumer spending. Retail banks may choose to internalize the costs associated with negative interest rates by paying them, which will negatively impact profits, rather than passing the costs to small depositors for fear that otherwise they will move their deposits into cash.

But Japan is completely different due to trillions of dollars of JPY carry trade positions accumulated due to nearly 20 years JPY zero interest policy. The scale has been completely out of control for BOJ. Unwinding of JPY carry trade positions have become a major indicator for worldwide bankers. Almost every trader has to monitor the unwinding of JPY carry trade positions.

In Japan, the economy 101 for housewives is carry trade. Due to long time zero interest rate policies, when you think about the investment tools related to Japan, carry trade is the first, not the stock market, let alone business investments.

 

[Jlaw]

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank's interest rate to zero may not be sufficient to stimulate borrowing and lending.

A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

Examples
An example of a negative interest rate policy would be to set the key rate at – 0.2%, such that bank depositors would have to pay two-tenths of a percent on their deposits instead of receiving any sort of positive interest.

• The Swiss government ran a de facto negative interest rate regime in the early 1970s to counter its currency appreciation due to investors fleeing inflation in other parts of the world.
• In 2009 and 2010 Sweden and in 2012 Denmark used negative interest rates to stem hot money flows into their economies.
• In 2014 the European Central Bank (ECB) instituted a negative interest rate that only applied to bank deposits intended to prevent the Eurozone from falling into a deflationary spiral.

Theoretically, targeting interest rates below zero will reduce the costs to borrow for companies and households, driving demand for loans and incentivizing investment and consumer spending. Retail banks may choose to internalize the costs associated with negative interest rates by paying them, which will negatively impact profits, rather than passing the costs to small depositors for fear that otherwise they will move their deposits into cash.

negative interest rate--another way for government to covertly confiscating the wealth of individuals. No one should be proud of this. I'm surprise you are defending this move.

 

[alaungphaya]

This is largely a symbolic move as Japanese interest rates have been close to 0, like really close to 0, for the best part of over a decade. But it does reek of desperation. Now let's see if I find a Yen backed loan...

But Japan is completely different due to trillions of dollars of JPY carry trade positions accumulated due to nearly 20 years JPY zero interest policy. The scale has been completely out of control for BOJ. Unwinding of JPY carry trade positions have become a major indicator for worldwide bankers. Almost every trader has to monitor the unwinding of JPY carry trade positions.

In Japan, the economy 101 for housewives is carry trade. Due to long time zero interest rate policies, when you think about the investment tools related to Japan, carry trade is the first, not the stock market, let alone business investments.

But there's nothing to invest in Japan. They need to be encouraged to spend first. The Yen carry trade is a problem more for the rest of the world than Japan as it encourages reckless lending and can feed into bubbles if you pig out too much.

 

[Keel]

Give us the quarterly figure on how active the japanese loan market is even before the "-ve" interest rate is introduced
And the prospect of capital investment in the business sector
This motion looks more like a desperation of the BOJ trying to steer the economy from sliding into stagnation

 

[Jlaw]

Give us the quarterly figure on how active the japanese loan market is even before the "-ve" interest rate is introduced
And the prospect of capital investment in the business sector
This motion looks more like a desperation of the BOJ trying to steer the economy from sliding into stagnation

Actually that is what it is to a point. Plus, Japan is not US so they can only print so much more extra yens before their yen is worth less than a Viet dong. They are not the US who can print forever--until they get usurp.

 

[Keel]

Actually that is what it is to a point. Plus, Japan is not US so they can only print so much more extra yens before their yen is worth less than a Viet dong. They are not the US who can print forever--until they get usurp.

it is ominous rather than a blessing because the JOP is driving away deposits and they cant withstand the payment of expenses on interest-bearing deposits and also an indication of the plight in japan that the banks cant make good profit or none at all out of the interest spread

.

 

[Jlaw]

it is ominous rather than a blessing because the JOP is driving away deposits and they cant withstand the payment of expenses on interest-bearing deposits and also an indication of the plight in japan that the banks cant make good profit or none at all out of the interest spread

.

indeed. But I don't think it's anything to do with bank profits. But it's an indication that savers are losers. People are forced to buy assets or put into gambling (stock market) for some return (hopefully).

 

[Aepsilons]

negative interest rate--another way for government to covertly confiscating the wealth of individuals. No one should be proud of this. I'm surprise you are defending this move.

I suppose BOJ officials are using the reference in the EU's recent implementation of negative interest rate back in 2014, which did help stem the tide of the Euro's spiral downward. It may or it may not work for Japan. That has yet to be seen.

 

[Cossack25A1]

Will this have a negative effect on Japanese exports such as electronics?

Japan was and is still known for their electronics, though South Korea is on par with Japan and China is catching up but this news will surely have an impact.

 

[alaungphaya]

Will this have a negative effect on Japanese exports such as electronics?

Japan was and is still known for their electronics, though South Korea is on par with Japan and China is catching up but this news will surely have an impact.

Japanese goods will be slightly cheaper.