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Bank of Japan, in a Surprise, Adopts Negative Interest Rate

nytimes.com

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Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#11

Post by guard-of-terra »

wrong_variable wrote: post #3

I do not understand this. Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price. Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the oppo…

Oil is cheap because China is having problems. And they were perhaps selling robots to China.

Yes, cheap commodities should benefit Japan but when they're cheap because demand is weak, Japan suffers from that too.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#12

Post by jetskindo »

> a sign of the continuing global trouble from plummeting low oil prices

Gas is one of those things I have no control over. If it's expensive I have to pay, if it's cheap I have to pay. I'm dependent, and in a city like Los Angeles the alternative is impossible. They raised the price of public transport to a point where it is not even convenient.

So when I go to the gas station and it's cheap I'm happy. I fill it up and have a smile on my face. Am I doing it wrong?

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#13

Post by dnautics »

adrianN wrote: post #2

Can someone explain to me why both cheap oil and expensive oil seem to be bad for the economy? Back when oil was >$100 per barrel everybody seemed to blame the weak economy on expensive oil. Now somehow very cheap oil is also a bad thing.

"cheap" is "bad" because it encourages "hoarding". Instead, those that run the economy would much rather put you on a treadmill of devaluation, which forces you to keep working harder (better unemployment figures!) and consume. Basically short shrift the working class of the value of their income - it's a backdoor paycut for workers[0]. It also forces the middle class into investing directly or indirectly (through pension funds, 401ks, etc) in the stock market, which is great for the ̶r̶i̶c̶h̶ economy and socializes the downside of entrepreneurial risk while letting entrepreneurs keep the upside.

[0] Don't take my word for that, it's in the words of nobel laureate Paul Krugman: http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hig... "Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#14

Post by lmm »

jetskindo wrote: post #12

> a sign of the continuing global trouble from plummeting low oil prices Gas is one of those things I have no control over. If it's expensive I have to pay, if it's cheap I have to pay. I'm dependent, and in a city like Los Angeles the alternative is impossible. They raised the price of public transport to a point where it is not even convenient. So when I go to the gas station and it's cheap I'm happy. I fill it up…

If the price you pay doesn't cover the externalities (i.e. tax that includes the cost of cleaning up an equivalent amount of CO2 etc. emissions) then yes you're doing it wrong. If you're covering all that then sure, enjoy.

In the more general case, rapid price swings cause trouble all round (they make it hard for everyone to plan) even when the price adjustment is "correct". For the economy as a whole, low prices are better than high prices, but a stable price would be better than a volatile price even if the volatile average price was lower.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#15

Post by lmm »

adrianN wrote: post #2

Can someone explain to me why both cheap oil and expensive oil seem to be bad for the economy? Back when oil was >$100 per barrel everybody seemed to blame the weak economy on expensive oil. Now somehow very cheap oil is also a bad thing.

Big price swings are bad for the economy - everyone ends up wrong-footed.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#16

Post by dimitar »

wrong_variable wrote: post #3

I do not understand this. Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price. Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the oppo…

There are different effects of the lower oil price on Japan's economy. BoJ staff have weighted them and determined that the net of them will threaten to move inflation growth off target.

How is the growth of inflation threatened? The BoJ thinks business confidence in Japan will drop because of recessions in trading partners.

This is why it is responding with a policy that will hopefully be more aggressive in pursuing higher inflation and GDP to offset the foreign developments.

In BoJ's own words in point two in the press release: http://www.boj.or.jp/en/announcements/release_2016/k160129a....

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#17

Post by dilemma »

guard-of-terra wrote: post #11
wrong_variable wrote: post #3

I do not understand this. Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price. Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the oppo…

Oil is cheap because China is having problems. And they were perhaps selling robots to China. Yes, cheap commodities should benefit Japan but when they're cheap because demand is weak, Japan suffers from that too.

The Japanese economy is dependent on exports of robots to China?

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#18

Post by narrator »

This is going to be great for the U.S economy:

http://useconomy.about.com/od/glossary/g/yen_carry_trade.htm

> Definition: The yen carry trade is when investors borrow yen at a low interest rate. They exchange it for U.S. dollars or any currency in a country that pays a high interest rate on its bonds. They receive a low-risk profit when they receive high interest on the money invested, but pay low interest on the money borrowed. The broker pays the difference into the account each day the trade is open

>The yen carry trade is alive and well in 2015, but not with the U.S. dollar. That ended in 2008 when the Federal Reserve dropped the Fed funds rate to near zero. It continued with high-yield currencies such as the Brazilian real, Australian dollar, and Turkish lira. For example, many forex traders borrow near-zero yen to buy Australian dollars which have a 4.5% return.

This is where all the money lent out is going to go, from the Japanese negative interest rate to the new slightly above zero U.S bond yield. Keeps the party going for a little while longer. Follow the money.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#19

Post by beachstartup »

dilemma wrote: post #17
guard-of-terra wrote: post #11

Earlier quoted context omitted.

Oil is cheap because China is having problems. And they were perhaps selling robots to China. Yes, cheap commodities should benefit Japan but when they're cheap because demand is weak, Japan suffers from that too.

The Japanese economy is dependent on exports of robots to China?

yes, and cars and electronics and everything else china consumes. even 7-11. you ever been to china?
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