Japan’s economy has not been doing as greatly as it could have over the last years. Even in the last quarter of 2015 Japan’s economy shrank at an annualised rate of 1, 4 %. One reason for this is Japan’s weak consumer spending. The deflation that followed Japan’s property and stock market burst in 90s has kept consumer waiting for the prices to drop even more, keeping the consumer spending down.
Now Japan decided to make an interesting move to fix its falling economy. And that move is negative interest rates. The new interest rate on deposits would be -0, 1 %. The central bank of Japan, the Bank of Japan, announced their surprising decision on the 29th of January the current year at the World Economic Forum annual meeting.
Negative interest rates means that money deposited in the bank is not going to grow but decrease. And vice versa if you take out a loan, you do not pay interest, but instead your loan decreases. The bank is basically paying you to take a loan, and charging you for letting your money just sit in the bank. Or in layman’s terms, the Bank of Japan really wants Japanese people to use their money. Got to get the consumerism to rise.
This decision was not an easy one, it almost didn’t come to pass. Even Haruhiko Kuroda, the governor on the Bank of Japan, had said that they wouldn’t resort to this. However, at the Bank of Japan’s first meeting in 2016 the decision on negative interest rates passed on a 5-4 vote.
But do not worry, any Japanese readers who might have stumbled on to his blog, negative rates are only going to affect new reserves.
And on top of that the negative interest rates are put on by the central bank of Japan, not the banks the public uses. So it’s possible that your everyday person living in Japan won’t be directly affected. Negative interest rates are really more for getting the banks to stop sitting on their money and instead lend it out.
So far the decision has got a lot of critique, from both public and professionals. The bold tactic is seen by many as a sign of how desperate Japan is getting.
Negative interest rates became effective on the 16th of February. I’ll be keeping my fingers crossed and hoping that this will not become the failure that many have already labelled it.