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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

#41

Post by nabla9 »

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…

I think you are confusing exchange rate mechanism and domestic economics and their interactions. Deflation does not mean that exchange rate of Japanese yen increases relative to other currencies.

Japan has free floating currency with inflation-targeting framework.

Japan's import-export balance adjusts more or less automatically because the currency floats relative to other currencies. Japan has very little foreign debt, so the huge national debt is not creating inflationary pressure trough exchange rates.

Japanese yen suffering from long period of low inflation and deflation (lost decade) is caused by the lack of structural reforms and demographics. Japan is getting old fast and people are saving for their retirement. Domestic consumption is not taking off

To put things into perspective:

Household consumption makes 61% of the Japanese GDP

Exports of goods and services is just 16.2%

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

#42

Post by Cyph0n »

jevgeni wrote: post #29
Patient0 wrote: post #25

This was news.... 3 days ago. I don't understand how it's rocketing up the HN front page only now.

On FT or Bloomberg, yeah. HN has more important things to do, like arguing if one can call a variable "iGiveHead" in a FOSS project[1]... ____ [1] - https://news.ycombinator.com/item?id=11018019

We have a winner here. If you don't like what people discuss here, go to Financial News.

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

#43

Post by singham »

unknown_apostle wrote: post #23
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.

The idea is that cheap oil would be caused by a worsening economy with less demand for it.

Most likely cheap oil is put Russia in place.

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

#44

Post by dzdt »

The backstory here is demographics. Japan has a shrinking, aging population and almost no immigration. With fewer people there are naturally less things bought, sold, and produced. Japanese authorities have been trying to pump the economy by deficit spending (central government borrows money and spends it), quantitative easing (central bank buys long term private debt, increasing the money supply for short term spending) and low interest rates. The central bank has to push people to invest in the economy, because without growth driving investment returns, generally people would rather the safety of a savings account giving a guaranteed if small interest rate. Negative rates are a way to push money into the investment economy even with no growth.

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

#45

Post by akerro »

Rumford wrote: post #31
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…

Your instincts are not wrong, believe it or not. Unfortunately most economists fall short of the current state of their science. The first thing one needs to understand about economics is how rife it is with special pleading from selfish interests, because the output of economic science is so important to justifying public policy prescriptions. One thing that is constantly ignored is how government fiddling with the…

Would you recommend Economyths by David Orrell?

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

#46

Post by nopassrecover »

ifdefdebug wrote: post #35
riskneural wrote: post #32

I remember, in 2009, spending the effort to go through the code to make sure we had a check to set the interest rate to zero if it went negative in the simulation. Because negative interest rates make no sense, right?

When the value of money falls very deep in a crisis and investors don't want to invest but keep their money liquid, then banks may charge you a fee for allowing you to park your money with them, instead of paying you for loaning it to them. So yes, negative interest can make sense. And maybe you coded a bug into your application instead o a feature, based on wrong assumptions...

Isn't it the case that a central bank primarily lends? In this case aren't they effectively paying banks to borrow?

Given 0% interest rates haven't led to desired economic investment and stimulus the approach of the ECB and BOJ seems like wishful thinking that "more of the same" will somehow create different results.

While it's clear the stock market benefits from the increased investment, it's not clear that this addresses the lack of aggregate demand in the economy (which as mentioned seems highly influenced by demographics).

Then again this is probably more about lowering currency value than stimulating domestic demand.

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

#47

Post by derefr »

dzdt wrote: post #44

The backstory here is demographics. Japan has a shrinking, aging population and almost no immigration. With fewer people there are naturally less things bought, sold, and produced. Japanese authorities have been trying to pump the economy by deficit spending (central government borrows money and spends it), quantitative easing (central bank buys long term private debt, increasing the money supply for short term spend…

Question: if the government doesn't want people "parking their money" in government bonds at all... then why not just stop issuing government bonds altogether, thus giving banks no choice but to invest in the market instead?

Is that somehow impossible? Would it make the market illiquid? Are there laws concerning the required volatility caps for the securities backing savings accounts that would have to be relaxed?

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

#49

Post by revelation »

derefr wrote: post #47
dzdt wrote: post #44

The backstory here is demographics. Japan has a shrinking, aging population and almost no immigration. With fewer people there are naturally less things bought, sold, and produced. Japanese authorities have been trying to pump the economy by deficit spending (central government borrows money and spends it), quantitative easing (central bank buys long term private debt, increasing the money supply for short term spend…

Question: if the government doesn't want people "parking their money" in government bonds at all ... then why not just stop issuing government bonds altogether, thus giving banks no choice but to invest in the market instead? Is that somehow impossible? Would it make the market illiquid? Are there laws concerning the required volatility caps for the securities backing savings accounts that would have to be relaxed?

They would presumably just invest it into other countries' government bonds? With the low interest rates, that has already been going on: borrow Japan money at low interest and buy a high interest government bond.

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

#50

Post by cdnsteve »

lmm wrote: post #15
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.

They are great for investment opportunities however.
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