Negative interest rates seem to be growing more popular these days. The first I ever heard of them was in regard to Switzerland in my high-school economics class, and now Japan, such a dynamic economy, is employing the same tactic. The point of a negative interest rate is to simulate the economy by encouraging spending. Where banks would normally store their money with a central bank, they now are forced to invest their money into other areas. As the equation for expenditure approach equation tells us, investment is a crucial part of economic growth. Furthermore, the Japanese central bank has already attempted to solve the issue by cutting taxes to increase consumer spending and increasing government spending. With both of these failing to stabilize the economy, they were forced to consider other solutions. The only other ways to stimulate the economy within control of the Japanese government is to address the investment variable of the expenditure equation. However, the traditional method of lowering interest rates near zero were unsuccessful therefore the only remaining option was a negative price of money. It is once again interesting to see the extraordinary power that China has on the economy. As the Chinese economy falls, economies all over the world are forced to use unconventional and risky tactics to try offsetting the adverse effects.
The idea of a negative interest rate was entirely foreign to me prior to the New York Times article, "Bank of Japan, in a Surprise, Adopts Negative Interest Rate," by Keith Bradsher. Hence learning that Denmark, Sweden and Switzerland all have had negative interest rates was stunning. I understand that the policy charges depositors to keep their money in the bank, opposed to receiving money on deposits. The intention is supposedly to incentive banks to lend more money and to invest more in the economy, what appears to be an appropriate solution for a country that has struggled through a quarter-century of weak growth. Despite the efforts to spur growth and increase inflation by Japan's prime minister, Shinzo Abe, the article deems Japan's economy to be unpredictable by addressing its sporadic instances of recession. It's interesting how the bank's policy makers attributed the rate cut to global conditions opposed to Japan's economy. Although initially I assumed they were attempting to wrongly charge the global economy for Japan's misfortune, the explanation of the risks China imposed as well as the same approach taken by other countries rationalized Japan's claim. The articles goes on to mention how weak prospects for economic growth in other countries is hindering businesses from investing in "any new projects." However, I found myself still wondering if there were any internal causes that may have stunted Japan's economic growth. And if so, are they causes that also exist in countries such as Denmark and Sweden who have also enforced the policy? Japan's new interest rate is expected to take effect in mid-February and will surely affect the global economy as well as Japans. Would this policy to encourage banks to lend, invest, and spend more stimulate not only Japan's economy but also have a positive effect on other economics? And how this potential effect on other economies be measured?
I never had a true understanding of what negative interest rates were until reading this article and doing some additional research. This article discusses Japan’s implementation of negative interest rates to try and promote growth in their faltering economy. With the current state of Japan’s economy and its lack of economic growth over the last twenty five years, it is not surprising that they have implemented the negative interest rates. It is a last resort that may be necessary as the country has fallen behind economically and is still trying to recover from the tsunami of a few years ago. In addition to this, the article itself mentions the recent failures in China, the extremely low oil prices, and slow international trade. All of these issues are contributing to the numerous issues of the Japanese economy and the prime minister has decided to attempt to “break the country’s cycle of decline”. It will be interesting to see how this pays off over time as while Prime Minister Abe has a track record of making to decisions to improve the Japanese economy. It will also be interesting to see how Japan will hold up with the many foreign influences over their economy and the failures in the current global economy.
Like many other students have commented, I would have never thought of a negative interest rate policy as a possible solution to Japan’s deflation of the yen. Since falling prices can lead to lower profits, incomes, and eventually unemployment, it makes sense that the banks would want to stoke inflation with negative interest rates. In relation to our discussion of the circular-flow diagram, I can see why negative rates would encourage firms to borrow money for projects and investments. This might stimulate firms to increase production, which due to deflation has previously fallen. As a result, as we can see from the diagram, an increase in production within firms could lead to an increase in incomes and also an increase in demand within the market for goods and services. The logic of negative interest rates makes sense; however, like all policies, there are usually some negative side effects. If households are no longer receiving interest on their deposits but rather pay to keep their money in the financial market, I wonder if this would discourage households to keep their money in banks… Would households still have an incentive to keep their money in banks? While I don’t think the Japanese would suddenly be storing cash in their homes, perhaps they will buy government bonds instead or find another way to store their money. However, I guess that this would simply stimulate the standstill economy in another way. It will be interesting to see the cause-and-effect of Japan’s new financial policy.
As economic struggles for many countries continue to grow as oil prices drop and economic volatility and uncertainty continues to mount. Japan, along with many other countries are dropping interest rates to combat slowing business expansion. Dropping interest rates allows businesses to borrow more money and hire more employees for projects. One problem with this is that businesses must have enough confidence in the market to expand. Additionally many businesses are already sitting on large amounts of cash, lowering interest rates will not entice these businesses to expand much considering they already have large amounts of cash on hand. As Japan lowers its interest rates below zero businesses will be able to borrow money from the banks and return the banks less money. One issue that may arise(similar to the crash in 2008) is speculative borrowing, investing, and lending. This, much like the housing bubble, has potential to bubble and crash. This decision to lower interest rates even further is interesting and is one of the many effective tools that a government can use to stimulate an economy. The future of the Japanese and World economy will be interesting, and the effect of negative interest rates will also be extremely interesting.
I chose to comment on this article because it reminded me of an article I read in September of last year about a committee member on the Federal Reserve floating the idea of a negative interest rate for the U.S. The article, “Could Negative Rates Be Next on the Fed’s Policy Menu” by Alex Rosenberg, said that the idea of a negative interest rate was not being considered very seriously. This makes sense, especially in light of Japan’s decision. The negative interest rate would not have been a vote of confidence in the economy from the U.S., and it is not a vote of confidence from Japan in its economy.
Based on Kuroda’s blunt explanation, the decision to set the interest rate below zero makes a degree of sense. Deflation could cause businesses to cut back, because there would be no incentive to produce. The policy is intended to prevent deflation and has the added benefit of encouraging businesses to borrow money in order to expand, which will create more jobs. In theory, it sounds as though the policy could be a good thing. However, it is a bold move that could have unintended ramifications. I am very interested to see the outcome.
This particular article was about the Japanese central bank deciding to set a negative interest rate. The need for negative interest rates only comes about when there is a very high level of doubt in the capabilities of an economy. As such, a negative interest rate essentially make banks pay interest for businesses to borrow money for them.
It was fascinating to read about negative interest rates, not only in Japan but also around the world, particularly after spending much of my econ class last year in high school discussing the potential rise in interest rates. When discussing the concept of a global economy and the effects different individual decisions make on the global economy, I have found it very interesting that many countries around the world, such as Japan or other European nations, are deciding to turn to negative interest rates, especially considering the United States just instituted their first interest rate hike in 9 years. Many hope that the strength of the US economy, as compared to others around the world, will lead to an improved global economy. There had been a lot of positive thinking as the US climbed out of the recession, albiet slowly, as economists hoped that US improvement would lead to a global improvement in the world economy which has yet to recover since the '08-'09 Great Recession. However, a negative start to the 2016 year in the US has meant that optimism has been curbed and many economies, such as the Japanese, are becoming more nervous about their potential direction, and are using negative interest rates to try and boost a struggling economy. After reading a very similar article on the same topic on the front page of the Weekend Edition of the Wall Street Journal, I can tell that this is a pressing issue and it will be interesting to see how the economy performs over the next few months.
This New York Times article discusses the Bank of Japan's decision to cut the interest rate to negative numbers in order to relieve the country from its deflationary period. When a bank has a negative interest rate, savers must pay to have their money in the bank instead of receiving money on deposits. Likewise, consumers and businesses have an easier time borrowing money from the bank. Therefore, the intended purpose of a negative interest rate is to increase consumer spending as a means of economic growth. This could also have a positive effect on employment, as well, as businesses have more money to invest.
This rational can be represented in the equation for GDP that we discussed in class on Thursday. The equation for GDP is Y = C + I + G + (X - IM) with C representing consumer spending, I representing investment, G representing government spending, and (X - IM) representing net exports. By lowering interest rates to below zero, the Bank of Japan is trying to increase consumer spending and investment, which will ultimately increase the country's GDP, indicating that the size of the economy is expanding. In my opinion, this is an unrealistic policy; negative interest rates indicate that the country's economy is struggling. Therefore, businesses are unlikely to make investments if they know the economy is in trouble. Likewise, it is possible that consumers will save their money in other banks other than those in their country. This could cause even more problems for Japan's economy.
This article analyzes the action taken by Japan of adopting negative interest rates, in hopes of stimulating the economy. This new interest rate of -0.1% intends to cause banks to lend more to companies, who will hire more people, who will spend their money. By increasing consumer spending and investment, Japan hopes to get itself out of an economic rut. This measure is, as noted in the article, a desperate course of action, but it is a rather desperate time for Japan. The context for this decision was chiefly created by lowering oil prices, international trade slowing, and China struggling to grow. The Bank of Japan is not the trailblazer with their negative rates, rather they are following suit from other central banks. This is a sign that the global economy is entering into an unstable period, and I am very interested to see what effects this policy has.
Prior to reading this article, I had never considered how implementing a policy that cuts interest rates below zero could actually help stimulate the Japanese economy. However, this idea now makes sense as a viable option, for it will push banks to lend to more companies, which will, in turn, result in companies both spending and hiring more. I also thought it was interesting how the article mentioned both the low oil prices and slowing growth of China--two topics that were mentioned in a previous article. The negative impact that low oil prices and a slowing Chinese economy is affecting the confidence of Japanese businesses, which will then affect an already nervous US economy, and increase the risk of sending the US economy into another recession. Furthermore, by decreasing their interest rates to -0.1%, the Japanese are decreasing the value of the yen, which will hurt China as it struggles to contain outflows of money and prop up its own currency. I find it extremely interesting how because many economies in the world are so intertwined, that a decision made by the Japanese administration will affect the entire global economy. The Bank of Japan even admitted that “the rate cut was based on global conditions, not the Japanese economy itself.” I'm interested to see if Japan's new policy will stabilize its economy, and hopefully quell the fears of many large businesses.
Japan making interest rates negative reminded me of when we talked in class about how if people have uncertainty about the inflation rate or probability of default, they will lend less and borrow less because they think the risk is high. In Japan, citizens are borrowing and lending less because they have uncertainty about the economy, causing a deflationary period where people save money rather than spend it. By adopting a negative interest rate, Japan will charge people a fee for keeping money in the bank, encouraging people to spend rather than save money and encouraging banks to loan money to businesses, which Japan hopes will stimulate their economy and stop the current period of deflation. At first, when I read the article I was shocked that a country would make citizens pay to keep their money in a bank, but after I read my class notes and had time to think about the impacts of a negative interest rate I realized that it is a smart move, although I'll have to wait a few months to see if the policy will indeed help their economy.
The New York Times article brings up the very important economic topic of negative interest rates. Although this idea seems very unorthodox there can be some benefit behind it, which is evident with the fact that many European banks and now Japanese banks have switched to negative interest rates. By 2015 about a third of the debt issued by European governments had negative yields which emphasizes this global shift to negative interest rates. Negative interest rates prompt banks into loaning out larger sums of money to businesses and other countries. If there is more money in the hands of consumers, than they can spend more which will give producers the ability to pay their labor forces. If the labor forces are being properly paid, then the unemployment rates will stay low and keep the economy out of a recession.
The flipside of this topic is that consumers may not borrow from the banks because they perceive a recession ahead. Economists know that negative interest rates are a sort of last ditch effort and that the country may be close to an economic downturn. If people begin to save their money, then the producers may not make enough income to pay their labor forces and the unemployment rate will skyrocket. Lastly the article mentions that one reason for Japans shift to negative interest rates is the peaking Chinese economy and the falling crude oil prices. The article is strongly interconnected with the Washington Post article posted a couple of days ago because of the fact that they both focus on how China’s economy can have a macro effect on the rest of the world’s economies and cause countries like Japan to take drastic measures to try and keep their economy afloat.
Japan's adoption of negative interest rates is unsurprising. Abenomics, dubbed after Prime Minister of Japan Shinzo Abe, derives its policies from an economic mindset that would almost certainly support monetarily expansionist measures like negative interest rates. The intended result is to kickstart the economy by increasing the volume of currency in circulation, through a mechanism that encourages banks to sustain lenient lending standards. This practice has already been adopted by the ECB (European Central Bank), with practically insignificant results, as most of the population is not willing to commit to higher levels of spending and investment, which is likely to be the same in Japan as both regions share very similar economic problems (ageing population, deflation, low levels of investment and spending, etc.)
Negative interest rates exist in countries other than Japan, including Sweden and Switzerland. It is interesting that the global recession is complicated enough that what was once a relatively rare occurrence is becoming more common, and that one country shifting its interest rates may affect the next one. While the reasoning behind choosing to make this financial move prove to be sound, and the goal of strengthening the Japanese economy is noble, the outcomes presented in the article do not appear promising. Furthermore, the article really demonstrates how intrinsically linked separate domestic economies are. Most of the consequences the article mentions are felt most by other countries’ economies.
I admit that the effects and the decision to create negative interest rates is more complicated than I can fully understand. But after reading the article, it appears to me that the move by the Japanese economy to do this is justified by a narrow view of potential outcomes, seeing only the potential benefit for the domestic economy, without noticing that overall it might create more risks than rewards for the global economy as a whole.
Before this article I had never known about negative interest rates, and now I find it to be a good idea if a country is going through troubles with their economy. This would cause people to be more prone to investing and spending their money instead of letting there money slowly be chipped at by these rates. If there are more people spending the economy will naturally rise a few percents like we saw in the Nikkei 225 charts in the article.
I do see a problem with this negative interest rate, when people no longer have the security of putting money in the bank they have to turn to riskier ways of making money that hopefully will make some profit. After doing some research on Europe using the negative interest rate policy I found that government bonds also had negative returns. This would force investors to invest in stocks, which may not be the best way to hold ones money since stocks can drop insane amounts and could possibly lead to people losing a lot of their money.
"Bank of Japan, in a Surprise, Adopts Negative Interest Rate" by Keith Bradsher is a brief explanation of a substantial economic decision made by the central bank of Japan that will have far-reaching effects on the global economy. Japan has adopted a -.1% interest rate on funds deposited and saved (over the legal minimum requirement) by banks. This policy, in essence, disincentivises saving money at the central bank for peripheral banks, and instead, encourages (hopefully) investment spending to stimulate the Japanese economy. This is a policy that has been adopted already in several European countries, as the author mentions, and one that has more effects than simply encouraging growth: It also devalues the Yen and any currency held to the Yen's value.
To me, this tactic seems as logical as the adoption of stimulus packages by the Obama administration in the 2008 recession. The ideas are the same, except the hope of Japan is that while the Yen will be temporarily devalued, and by injecting the pre-existing cash back into the economy, eventually, interest rates could be raised back into the positive values. At this point, the Yen's value rescued, the new capital created by the investment spending during the negative interest rate era would stimulate the economy enough to not necessitate a perpetuation of this negative interest rate. That's the theory, now whether or not this will work in practicality is a different story. To me is seems that Japan will have difficulty maintaining their ground on this interest rate with the economic pressure from China, whose currency will also be losing value. Moreover, in devaluing their currency, Japan is devaluing the investment spending that is the exact goal of the rate. Banks are having to loan more money to generate the same new capital, which could also be counterintuitive.
Negative interest rates seem to be growing more popular these days. The first I ever heard of them was in regard to Switzerland in my high-school economics class, and now Japan, such a dynamic economy, is employing the same tactic. The point of a negative interest rate is to simulate the economy by encouraging spending. Where banks would normally store their money with a central bank, they now are forced to invest their money into other areas. As the equation for expenditure approach equation tells us, investment is a crucial part of economic growth. Furthermore, the Japanese central bank has already attempted to solve the issue by cutting taxes to increase consumer spending and increasing government spending. With both of these failing to stabilize the economy, they were forced to consider other solutions. The only other ways to stimulate the economy within control of the Japanese government is to address the investment variable of the expenditure equation. However, the traditional method of lowering interest rates near zero were unsuccessful therefore the only remaining option was a negative price of money. It is once again interesting to see the extraordinary power that China has on the economy. As the Chinese economy falls, economies all over the world are forced to use unconventional and risky tactics to try offsetting the adverse effects.
Posted by: Ian Gipson | 01/29/2016 at 04:41 PM
The idea of a negative interest rate was entirely foreign to me prior to the New York Times article, "Bank of Japan, in a Surprise, Adopts Negative Interest Rate," by Keith Bradsher. Hence learning that Denmark, Sweden and Switzerland all have had negative interest rates was stunning. I understand that the policy charges depositors to keep their money in the bank, opposed to receiving money on deposits. The intention is supposedly to incentive banks to lend more money and to invest more in the economy, what appears to be an appropriate solution for a country that has struggled through a quarter-century of weak growth. Despite the efforts to spur growth and increase inflation by Japan's prime minister, Shinzo Abe, the article deems Japan's economy to be unpredictable by addressing its sporadic instances of recession. It's interesting how the bank's policy makers attributed the rate cut to global conditions opposed to Japan's economy. Although initially I assumed they were attempting to wrongly charge the global economy for Japan's misfortune, the explanation of the risks China imposed as well as the same approach taken by other countries rationalized Japan's claim. The articles goes on to mention how weak prospects for economic growth in other countries is hindering businesses from investing in "any new projects." However, I found myself still wondering if there were any internal causes that may have stunted Japan's economic growth. And if so, are they causes that also exist in countries such as Denmark and Sweden who have also enforced the policy? Japan's new interest rate is expected to take effect in mid-February and will surely affect the global economy as well as Japans. Would this policy to encourage banks to lend, invest, and spend more stimulate not only Japan's economy but also have a positive effect on other economics? And how this potential effect on other economies be measured?
Posted by: Yo Han(John) Ahn | 01/29/2016 at 06:37 PM
I never had a true understanding of what negative interest rates were until reading this article and doing some additional research. This article discusses Japan’s implementation of negative interest rates to try and promote growth in their faltering economy. With the current state of Japan’s economy and its lack of economic growth over the last twenty five years, it is not surprising that they have implemented the negative interest rates. It is a last resort that may be necessary as the country has fallen behind economically and is still trying to recover from the tsunami of a few years ago. In addition to this, the article itself mentions the recent failures in China, the extremely low oil prices, and slow international trade. All of these issues are contributing to the numerous issues of the Japanese economy and the prime minister has decided to attempt to “break the country’s cycle of decline”. It will be interesting to see how this pays off over time as while Prime Minister Abe has a track record of making to decisions to improve the Japanese economy. It will also be interesting to see how Japan will hold up with the many foreign influences over their economy and the failures in the current global economy.
Posted by: Jack Boyce | 01/29/2016 at 08:53 PM
Like many other students have commented, I would have never thought of a negative interest rate policy as a possible solution to Japan’s deflation of the yen. Since falling prices can lead to lower profits, incomes, and eventually unemployment, it makes sense that the banks would want to stoke inflation with negative interest rates. In relation to our discussion of the circular-flow diagram, I can see why negative rates would encourage firms to borrow money for projects and investments. This might stimulate firms to increase production, which due to deflation has previously fallen. As a result, as we can see from the diagram, an increase in production within firms could lead to an increase in incomes and also an increase in demand within the market for goods and services. The logic of negative interest rates makes sense; however, like all policies, there are usually some negative side effects. If households are no longer receiving interest on their deposits but rather pay to keep their money in the financial market, I wonder if this would discourage households to keep their money in banks… Would households still have an incentive to keep their money in banks? While I don’t think the Japanese would suddenly be storing cash in their homes, perhaps they will buy government bonds instead or find another way to store their money. However, I guess that this would simply stimulate the standstill economy in another way. It will be interesting to see the cause-and-effect of Japan’s new financial policy.
Posted by: Julia Wilson | 01/30/2016 at 11:39 AM
As economic struggles for many countries continue to grow as oil prices drop and economic volatility and uncertainty continues to mount. Japan, along with many other countries are dropping interest rates to combat slowing business expansion. Dropping interest rates allows businesses to borrow more money and hire more employees for projects. One problem with this is that businesses must have enough confidence in the market to expand. Additionally many businesses are already sitting on large amounts of cash, lowering interest rates will not entice these businesses to expand much considering they already have large amounts of cash on hand. As Japan lowers its interest rates below zero businesses will be able to borrow money from the banks and return the banks less money. One issue that may arise(similar to the crash in 2008) is speculative borrowing, investing, and lending. This, much like the housing bubble, has potential to bubble and crash. This decision to lower interest rates even further is interesting and is one of the many effective tools that a government can use to stimulate an economy. The future of the Japanese and World economy will be interesting, and the effect of negative interest rates will also be extremely interesting.
Posted by: Davis Alliger | 01/31/2016 at 04:23 PM
I chose to comment on this article because it reminded me of an article I read in September of last year about a committee member on the Federal Reserve floating the idea of a negative interest rate for the U.S. The article, “Could Negative Rates Be Next on the Fed’s Policy Menu” by Alex Rosenberg, said that the idea of a negative interest rate was not being considered very seriously. This makes sense, especially in light of Japan’s decision. The negative interest rate would not have been a vote of confidence in the economy from the U.S., and it is not a vote of confidence from Japan in its economy.
Based on Kuroda’s blunt explanation, the decision to set the interest rate below zero makes a degree of sense. Deflation could cause businesses to cut back, because there would be no incentive to produce. The policy is intended to prevent deflation and has the added benefit of encouraging businesses to borrow money in order to expand, which will create more jobs. In theory, it sounds as though the policy could be a good thing. However, it is a bold move that could have unintended ramifications. I am very interested to see the outcome.
Posted by: Mary Hampton McNeal | 01/31/2016 at 05:21 PM
This particular article was about the Japanese central bank deciding to set a negative interest rate. The need for negative interest rates only comes about when there is a very high level of doubt in the capabilities of an economy. As such, a negative interest rate essentially make banks pay interest for businesses to borrow money for them.
It was fascinating to read about negative interest rates, not only in Japan but also around the world, particularly after spending much of my econ class last year in high school discussing the potential rise in interest rates. When discussing the concept of a global economy and the effects different individual decisions make on the global economy, I have found it very interesting that many countries around the world, such as Japan or other European nations, are deciding to turn to negative interest rates, especially considering the United States just instituted their first interest rate hike in 9 years. Many hope that the strength of the US economy, as compared to others around the world, will lead to an improved global economy. There had been a lot of positive thinking as the US climbed out of the recession, albiet slowly, as economists hoped that US improvement would lead to a global improvement in the world economy which has yet to recover since the '08-'09 Great Recession. However, a negative start to the 2016 year in the US has meant that optimism has been curbed and many economies, such as the Japanese, are becoming more nervous about their potential direction, and are using negative interest rates to try and boost a struggling economy. After reading a very similar article on the same topic on the front page of the Weekend Edition of the Wall Street Journal, I can tell that this is a pressing issue and it will be interesting to see how the economy performs over the next few months.
Posted by: Alex Shields | 01/31/2016 at 06:51 PM
This New York Times article discusses the Bank of Japan's decision to cut the interest rate to negative numbers in order to relieve the country from its deflationary period. When a bank has a negative interest rate, savers must pay to have their money in the bank instead of receiving money on deposits. Likewise, consumers and businesses have an easier time borrowing money from the bank. Therefore, the intended purpose of a negative interest rate is to increase consumer spending as a means of economic growth. This could also have a positive effect on employment, as well, as businesses have more money to invest.
This rational can be represented in the equation for GDP that we discussed in class on Thursday. The equation for GDP is Y = C + I + G + (X - IM) with C representing consumer spending, I representing investment, G representing government spending, and (X - IM) representing net exports. By lowering interest rates to below zero, the Bank of Japan is trying to increase consumer spending and investment, which will ultimately increase the country's GDP, indicating that the size of the economy is expanding. In my opinion, this is an unrealistic policy; negative interest rates indicate that the country's economy is struggling. Therefore, businesses are unlikely to make investments if they know the economy is in trouble. Likewise, it is possible that consumers will save their money in other banks other than those in their country. This could cause even more problems for Japan's economy.
Posted by: Jane Chiavelli | 01/31/2016 at 07:00 PM
This article analyzes the action taken by Japan of adopting negative interest rates, in hopes of stimulating the economy. This new interest rate of -0.1% intends to cause banks to lend more to companies, who will hire more people, who will spend their money. By increasing consumer spending and investment, Japan hopes to get itself out of an economic rut. This measure is, as noted in the article, a desperate course of action, but it is a rather desperate time for Japan. The context for this decision was chiefly created by lowering oil prices, international trade slowing, and China struggling to grow. The Bank of Japan is not the trailblazer with their negative rates, rather they are following suit from other central banks. This is a sign that the global economy is entering into an unstable period, and I am very interested to see what effects this policy has.
Posted by: Andrew Agrippina | 01/31/2016 at 08:29 PM
Prior to reading this article, I had never considered how implementing a policy that cuts interest rates below zero could actually help stimulate the Japanese economy. However, this idea now makes sense as a viable option, for it will push banks to lend to more companies, which will, in turn, result in companies both spending and hiring more. I also thought it was interesting how the article mentioned both the low oil prices and slowing growth of China--two topics that were mentioned in a previous article. The negative impact that low oil prices and a slowing Chinese economy is affecting the confidence of Japanese businesses, which will then affect an already nervous US economy, and increase the risk of sending the US economy into another recession. Furthermore, by decreasing their interest rates to -0.1%, the Japanese are decreasing the value of the yen, which will hurt China as it struggles to contain outflows of money and prop up its own currency. I find it extremely interesting how because many economies in the world are so intertwined, that a decision made by the Japanese administration will affect the entire global economy. The Bank of Japan even admitted that “the rate cut was based on global conditions, not the Japanese economy itself.” I'm interested to see if Japan's new policy will stabilize its economy, and hopefully quell the fears of many large businesses.
Posted by: Danielle Spickard | 01/31/2016 at 10:42 PM
Japan making interest rates negative reminded me of when we talked in class about how if people have uncertainty about the inflation rate or probability of default, they will lend less and borrow less because they think the risk is high. In Japan, citizens are borrowing and lending less because they have uncertainty about the economy, causing a deflationary period where people save money rather than spend it. By adopting a negative interest rate, Japan will charge people a fee for keeping money in the bank, encouraging people to spend rather than save money and encouraging banks to loan money to businesses, which Japan hopes will stimulate their economy and stop the current period of deflation. At first, when I read the article I was shocked that a country would make citizens pay to keep their money in a bank, but after I read my class notes and had time to think about the impacts of a negative interest rate I realized that it is a smart move, although I'll have to wait a few months to see if the policy will indeed help their economy.
Posted by: Abigail Summerville | 01/31/2016 at 11:13 PM
The New York Times article brings up the very important economic topic of negative interest rates. Although this idea seems very unorthodox there can be some benefit behind it, which is evident with the fact that many European banks and now Japanese banks have switched to negative interest rates. By 2015 about a third of the debt issued by European governments had negative yields which emphasizes this global shift to negative interest rates. Negative interest rates prompt banks into loaning out larger sums of money to businesses and other countries. If there is more money in the hands of consumers, than they can spend more which will give producers the ability to pay their labor forces. If the labor forces are being properly paid, then the unemployment rates will stay low and keep the economy out of a recession.
The flipside of this topic is that consumers may not borrow from the banks because they perceive a recession ahead. Economists know that negative interest rates are a sort of last ditch effort and that the country may be close to an economic downturn. If people begin to save their money, then the producers may not make enough income to pay their labor forces and the unemployment rate will skyrocket. Lastly the article mentions that one reason for Japans shift to negative interest rates is the peaking Chinese economy and the falling crude oil prices. The article is strongly interconnected with the Washington Post article posted a couple of days ago because of the fact that they both focus on how China’s economy can have a macro effect on the rest of the world’s economies and cause countries like Japan to take drastic measures to try and keep their economy afloat.
Posted by: James Brady | 02/01/2016 at 04:24 PM
Japan's adoption of negative interest rates is unsurprising. Abenomics, dubbed after Prime Minister of Japan Shinzo Abe, derives its policies from an economic mindset that would almost certainly support monetarily expansionist measures like negative interest rates. The intended result is to kickstart the economy by increasing the volume of currency in circulation, through a mechanism that encourages banks to sustain lenient lending standards. This practice has already been adopted by the ECB (European Central Bank), with practically insignificant results, as most of the population is not willing to commit to higher levels of spending and investment, which is likely to be the same in Japan as both regions share very similar economic problems (ageing population, deflation, low levels of investment and spending, etc.)
Posted by: Guilherme Baldresca | 02/01/2016 at 05:53 PM
Negative interest rates exist in countries other than Japan, including Sweden and Switzerland. It is interesting that the global recession is complicated enough that what was once a relatively rare occurrence is becoming more common, and that one country shifting its interest rates may affect the next one. While the reasoning behind choosing to make this financial move prove to be sound, and the goal of strengthening the Japanese economy is noble, the outcomes presented in the article do not appear promising. Furthermore, the article really demonstrates how intrinsically linked separate domestic economies are. Most of the consequences the article mentions are felt most by other countries’ economies.
I admit that the effects and the decision to create negative interest rates is more complicated than I can fully understand. But after reading the article, it appears to me that the move by the Japanese economy to do this is justified by a narrow view of potential outcomes, seeing only the potential benefit for the domestic economy, without noticing that overall it might create more risks than rewards for the global economy as a whole.
Posted by: Caleigh Wells | 02/01/2016 at 09:34 PM
Before this article I had never known about negative interest rates, and now I find it to be a good idea if a country is going through troubles with their economy. This would cause people to be more prone to investing and spending their money instead of letting there money slowly be chipped at by these rates. If there are more people spending the economy will naturally rise a few percents like we saw in the Nikkei 225 charts in the article.
I do see a problem with this negative interest rate, when people no longer have the security of putting money in the bank they have to turn to riskier ways of making money that hopefully will make some profit. After doing some research on Europe using the negative interest rate policy I found that government bonds also had negative returns. This would force investors to invest in stocks, which may not be the best way to hold ones money since stocks can drop insane amounts and could possibly lead to people losing a lot of their money.
Posted by: John Broderick | 02/01/2016 at 10:50 PM
"Bank of Japan, in a Surprise, Adopts Negative Interest Rate" by Keith Bradsher is a brief explanation of a substantial economic decision made by the central bank of Japan that will have far-reaching effects on the global economy. Japan has adopted a -.1% interest rate on funds deposited and saved (over the legal minimum requirement) by banks. This policy, in essence, disincentivises saving money at the central bank for peripheral banks, and instead, encourages (hopefully) investment spending to stimulate the Japanese economy. This is a policy that has been adopted already in several European countries, as the author mentions, and one that has more effects than simply encouraging growth: It also devalues the Yen and any currency held to the Yen's value.
To me, this tactic seems as logical as the adoption of stimulus packages by the Obama administration in the 2008 recession. The ideas are the same, except the hope of Japan is that while the Yen will be temporarily devalued, and by injecting the pre-existing cash back into the economy, eventually, interest rates could be raised back into the positive values. At this point, the Yen's value rescued, the new capital created by the investment spending during the negative interest rate era would stimulate the economy enough to not necessitate a perpetuation of this negative interest rate. That's the theory, now whether or not this will work in practicality is a different story. To me is seems that Japan will have difficulty maintaining their ground on this interest rate with the economic pressure from China, whose currency will also be losing value. Moreover, in devaluing their currency, Japan is devaluing the investment spending that is the exact goal of the rate. Banks are having to loan more money to generate the same new capital, which could also be counterintuitive.
Posted by: Elliotemadian | 02/04/2016 at 08:54 PM