Author Topic: Negative interest rates in Japan  (Read 4250 times)

mcampbell

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Negative interest rates in Japan
« on: February 02, 2016, 07:56:18 AM »
I have read a dozen sources, I don't quite understand the impact of negative interest rates will have. Can someone explain to me like i'm 5 ;)
http://finance.yahoo.com/news/bank-japan-surprised-markets-negative-121604807.html

soccerluvof4

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Re: Negative interest rates in Japan
« Reply #1 on: February 02, 2016, 08:07:37 AM »
posting to follow

Retire-Canada

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Re: Negative interest rates in Japan
« Reply #2 on: February 02, 2016, 08:57:12 AM »
posting to follow

You can simply click on the "Notify" tab at the top of the thread to get updates without having to make a post that essentially says nothing.

bearkat

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Re: Negative interest rates in Japan
« Reply #3 on: February 03, 2016, 08:07:55 AM »
posting to follow

You can simply click on the "Notify" tab at the top of the thread to get updates without having to make a post that essentially says nothing.

Hopefully this method catches on, as it's a little irksome to have all of these posts at the top of topics that "essentially [say] nothing." If this continues, why, on this very thread we may get the first three replies, nay the whole first page, to be a bunch of "nothing," posted by people that didn't even read the link. ;-)

Retire-Canada

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Re: Negative interest rates in Japan
« Reply #4 on: February 03, 2016, 08:14:27 AM »
Hopefully this method catches on, as it's a little irksome to have all of these posts at the top of topics that "essentially [say] nothing." If this continues, why, on this very thread we may get the first three replies, nay the whole first page, to be a bunch of "nothing," posted by people that didn't even read the link. ;-)

Agreed. I would just post the reminder when you see the "posting to follow message". Yes in the short term it causes more OT posts, but hopefully one extra OT post can stop many more future ones.

seattlecyclone

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Re: Negative interest rates in Japan
« Reply #5 on: February 03, 2016, 08:17:42 AM »
I have read a dozen sources, I don't quite understand the impact of negative interest rates will have. Can someone explain to me like i'm 5 ;)
http://finance.yahoo.com/news/bank-japan-surprised-markets-negative-121604807.html

It means that if you want to store money in cash in Japan, you'll have to pay for the privilege. It means that other interest rates based off this main rate will be even lower than they would be in a 0% interest environment.

Shane

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Re: Negative interest rates in Japan
« Reply #6 on: February 03, 2016, 08:38:54 AM »
Japanese banks are being charged .1% on their cash deposits at the central bank. It's to give the banks more of an incentive to lend their money out instead of keeping it "safe" at the central bank. If banks pass the negative interest rate on to consumers, maybe it will get them to spend more money, thus stimulating the economy.

Japan has, for a long time, had the opposite problem from the U.S. Japanese people are savers. In Japan, a 50% savings rate is considered "normal."

nobodyspecial

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Re: Negative interest rates in Japan
« Reply #7 on: February 03, 2016, 09:49:02 AM »
Doubtful that the retail banks can pass on negative interest rates to customers!
It has led to novel accounting practices in the few countries Europe where it has been tried.
Some large organisations have been simply over-paying their taxes early and in advance - then filing a correction when they want the money back. Others have been writing large checks to themselves and putting them in a safe.

It could lead to some really interesting behavior - discounts for paying your bills late, suppliers complaining that large customers are paying them on time ?
« Last Edit: February 03, 2016, 11:03:01 AM by nobodyspecial »

wienerdog

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Re: Negative interest rates in Japan
« Reply #8 on: February 03, 2016, 10:20:28 AM »
It is also something the Federal Reserve is looking at testing this year.

http://www.federalreserve.gov/newsevents/press/bcreg/20160128a.htm


johnny847

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Re: Negative interest rates in Japan
« Reply #9 on: February 03, 2016, 10:27:35 AM »
Hopefully this method catches on, as it's a little irksome to have all of these posts at the top of topics that "essentially [say] nothing." If this continues, why, on this very thread we may get the first three replies, nay the whole first page, to be a bunch of "nothing," posted by people that didn't even read the link. ;-)

Agreed. I would just post the reminder when you see the "posting to follow message". Yes in the short term it causes more OT posts, but hopefully one extra OT post can stop many more future ones.

The reason people do this is notify sends you an email and some people don't like the inbox clutter. Whereas posting to follow means no emails but every time the thread is updated it shows up in the new replies to your posts section.

These two methods of subscribing to a thread are independent of each other. You can even do both if you like.

PathtoFIRE

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Re: Negative interest rates in Japan
« Reply #10 on: February 03, 2016, 10:40:46 AM »
The problem is that negative interest rates are ultimately a tax, i.e. money destroyer, as they transfer money from the private sector to the government sector. Also seems likely to be deflationary, which I really hope we can all agree is something to be avoided. It's time for the central banks to recognize that monetary considerations are limited, and it's time for legislatures to use the power of sovereign governments to enact fiscal solutions, such as infrastructure/education/research investments. If we in the USA aren't running 1T deficits over the next few years, we are doing it wrong!

Optimiser

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Re: Negative interest rates in Japan
« Reply #11 on: February 03, 2016, 01:57:24 PM »
The problem is that negative interest rates are ultimately a tax, i.e. money destroyer, as they transfer money from the private sector to the government sector. Also seems likely to be deflationary, which I really hope we can all agree is something to be avoided. It's time for the central banks to recognize that monetary considerations are limited, and it's time for legislatures to use the power of sovereign governments to enact fiscal solutions, such as infrastructure/education/research investments. If we in the USA aren't running 1T deficits over the next few years, we are doing it wrong!

I have a hard time understanding why we need to be so fearful of deflation. Some markets, like computers or tvs, have constantly falling prices and that seems to be okay.

johnny847

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Re: Negative interest rates in Japan
« Reply #12 on: February 03, 2016, 02:06:14 PM »
The problem is that negative interest rates are ultimately a tax, i.e. money destroyer, as they transfer money from the private sector to the government sector. Also seems likely to be deflationary, which I really hope we can all agree is something to be avoided. It's time for the central banks to recognize that monetary considerations are limited, and it's time for legislatures to use the power of sovereign governments to enact fiscal solutions, such as infrastructure/education/research investments. If we in the USA aren't running 1T deficits over the next few years, we are doing it wrong!

I have a hard time understanding why we need to be so fearful of deflation. Some markets, like computers or tvs, have constantly falling prices and that seems to be okay.

When deflation happens for an entire economy (or close to it), you're rewarded for delaying purchases. If you wait, it'll be cheaper. Meaning less money goes round and round in the economy. And it gets into a vicious cycle - people expect prices to drop, so when they become less willing to buy stuff, companies have to lower prices.

Computers and electronics in general have falling prices in the long run because of the nature of silicon based technology. Advancing tne technology means making transistors smaller, which means more parts can be made for the same area. It inherently makes it cheaper. This isnt the same thing as systemic deflation.

talltexan

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Re: Negative interest rates in Japan
« Reply #13 on: February 03, 2016, 02:28:09 PM »
The other thing about deflation is that it makes debtors default on their debts, the value of which has unexpectedly increased. A lot of creditors/bond holders who think they're safe can take huge hits to their net worth when that happens.


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backyardfeast

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Re: Negative interest rates in Japan
« Reply #14 on: February 03, 2016, 02:31:59 PM »
Quote
When deflation happens for an entire economy (or close to it), you're rewarded for delaying purchases. If you wait, it'll be cheaper. Meaning less money goes round and round in the economy. And it gets into a vicious cycle - people expect prices to drop, so when they become less willing to buy stuff, companies have to lower prices.

Yes.  I'm a little worried about deflation here in Canada at the moment, for example.  Oil prices have fallen, which should be great for consumers, right?  But as prices have fallen below the costs of production, this actually produces layoffs and a slowing economy.  Then the reduced demand from all the people losing their jobs and general pessimism about the economy brings the prices down even more, which then causes more layoffs, etc.  It can become a vicious cycle that's difficult to come out of.

(I'm just using this as an example to illustrate; the Canadian economy is more diverse than this and although this is a worrying thread in the economy, I'm not actually panicking about systemic deflation just yet)

Keith123

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Re: Negative interest rates in Japan
« Reply #15 on: February 04, 2016, 08:08:39 AM »
As far as I understand, negative interest rates are a desperate attempt intended to try and incentivize banks to lend and consumers to borrow and spend, which in turn spurs the economy.  With a negative interest rate, commercial banks have to pay to deposit their money with the central bank.  They are probably unlikely to pass this cost through the average depositor because it would likely trigger massive withdrawals from a bank that charges customers to deposit their cash.  This could turn into a bank run and ultimately make the bank insolvent.  Instead, banks will likely want to lend instead of hold onto the cash.  As weird as it is, debt is the only way to grow these economies.  People need to borrow and spend and banks need to lend.  It seems we are reaching a breaking point where there the world can't take on much more debt.  When this happens, crashes happen and assets devalue.  This kind of resets the economy.  Through companies and people going bankrupt, their debts are wiped out and a few years later they can borrow again.  This forced deleveraging.  Negative interest rates just kick the crash further down the road.  While it's impossible to know when the crash will come, it is pretty much assured that it will happen.  Could be this year, could be 20 years down the road.  Just depends on how long central banks can stall it.  If negative interest rates hit the US, I'd say the time is near.  Right now, the unemployment picture is the only reason the Fed has not dropped interest rates again.  If unemployment starts to rise, start getting very worried.