
Bank of Japan, in a Surprise, Adopts Negative Interest Rate - timr
http://www.nytimes.com/2016/01/30/business/international/japan-interest-rate.html?ref=asia&_r=0
======
HSO
Those who think Japan is unique in its condition and/or that the answer to its
problems is more of the same old "advice" as proffered by standard issue
economists and business types might profit from Robert Gordon's recently
published "American Growth". (paper version:
[http://www.nber.org/papers/w18315.pdf](http://www.nber.org/papers/w18315.pdf))
At least, it can offer a different, longer-term perspective on the issues.

It's not impossible that we will look back in 20 years and see Japan not as
some sort of failure but simply as the first society that had to learn to live
without growth.

~~~
jernfrost
But the growth problems of Japan is largely an illusion and myth caused by
population decline. Growth per capita in Japan has been completely normal in
the supposed terrible years. It is the population decline which causes the
overall GDP growth to look anemic.

Naturally it is growth per capita which matters as this is what improves the
living conditions of people. There are many countries with high GDP growth but
which also has higher population growth causing everybody actually to get
poorer. That is not something anybody should want to emulate.

But of course low total GDP growth looks bad to business because the markets
for their goods does not expand.

~~~
jessriedel
What time period are you talking about? In 1991, per capita GDP in US and
Japan were both ~$32k in 2005 USD. But now it's ~$38k for Japan and $47k for
US.

[http://www.tradingeconomics.com/united-states/gdp-per-
capita](http://www.tradingeconomics.com/united-states/gdp-per-capita)

[http://www.tradingeconomics.com/japan/gdp-per-
capita](http://www.tradingeconomics.com/japan/gdp-per-capita)

~~~
sitkack
Per capita statistics encourage a false assumption of sharing. It isn't
measuring what most people think it is.

~~~
jessriedel
I was responding to this claim by jernfrost: "Growth per capita in Japan has
been completely normal in the supposed terrible years. It is the population
decline which causes the overall GDP growth to look anemic."

------
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.

~~~
Cthulhu_
Wouldn't it be acceptable to just accept a shrinking economy and change
policies in such a way to deal with it? i.e. shrink the police and armed
forces, public services, cut needless spending, etc. Become more frugal as
economy allows.

~~~
hackerboos
The key phrase here was 'aging population'. If the majority of Japan's
population are retired then there will still be a huge deficit.

Japan needs to bite the bullet and accept immigration as part of its economic
strategy.

~~~
aikah
> Japan needs to bite the bullet and accept immigration.

Immigration isn't going to solve anything, immigration from where ? Japan
isn't the US, they aren't talking English nor their society is build in a way
it can accept huge immigration waves.

Japan needs to work on techs that will solve its problems, not resort to a
massive immigration wave that will only kick the can down the road.

~~~
mistermann
Not to mention the change immigration could potentially cause in day to day
life. In my opinion one of the best things about Japan is the homogeneous and
pleasant (in most but not all ways) culture - if I lived there voting for
increased immigration would be one of the absolute last resort measures I
would vote for.

~~~
oldmanjay
That homogeneous and mostly pleasant culture is killing itself, apparently. We
may get to witness a nation commit suicide, which ought to be interesting from
the outside.

I hope the insularity ends up being worth it for them, but history is not on
their side.

~~~
brobinson
>That homogeneous and mostly pleasant culture is killing itself, apparently.

No, this is literally the post-WW2 boom dying off. Occupied Japan underwent a
period of extreme population growth in the few decades after WW2 ended. They
currently have 125mm people living in a land area the size of California which
is 75% uninhabitable (mountains).

------
wrong_variable
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 opposite way too - high prices of oil and commodities will result in
lower surplus - meaning growth will be most in countries who produce oil and
commodities.

Citing "low price of oil" as a reason for economic woes just seems like bad
science - I though economists were better than this ?

~~~
guard-of-terra
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.

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

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

~~~
dilemma
I live in China, and previously in Japan. My point is that the majority of the
Japanese economy is not made up of exports to China, which in turn are not in
majority made up of robots, as the parent believes.

~~~
beachstartup
ELI5: a reduction in demand from china will have a huge impact on japan. i
don't know what other weird yarn about robots you're trying to spin with my
words.

~~~
dilemma
You're not the parent; stop commenting.

------
woodpanel
Maybe OT:

Isn't this just proof that Japan needs to let go of it's biggest barrier to
growth? By which I mean it's non-existing immigration?

I've been recently to Japan and despite my fears Tokio was a really affordable
place (leaving out the hotel prices of course). I thought this was due to the
lack of growth and the recent quantitative easing and other government
measures. Measurements that seem to be failing at the moment (thus the
negative rates).

So cheap Tokio-Sushi is nice for European tourists, sure, but just a sign of
how much growth Japan has lacked over the past years/decades that it suddenly
becomes a tourist destination.

In contrast to that: I could imagine Japan, with its still high quality of
living and modern, orderly society as a real draw for young and skilled talent
from abroad if it were to open it's borders (and society).

Think about it in the terms of Gentrification: It's an artificially
undervalued "part of town". One which value and (currently) cheap prices would
sureley be appreciated by the pioneers this country needs.

~~~
yuiyui
> By which I mean it's non-existing immigration?

That's not a bug, it's a feature. Japan enjoys the advantages of having a
civilized, educated, homogeneous, high trust society, and they're not willing
to abandon that in exchange of what, low skilled workers they don't need and
ethnic conflict?

~~~
SolaceQuantum
I think that the parent specifically mentioned highly skilled young workers
who would be attracted by the modern lifestyle in Tokyo.

~~~
_nedR
I dont think high skilled young workers, will be looking forward to taking
care of the large number of old people, when Japan hits its population cliff.
That probably will be a big sector demanding immigration.

~~~
guard-of-terra
Old people could probably take care of even older people, will easily create
lots of jobs.

------
adrianN
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.

~~~
dazc
Cheap oil is bad for net exporters of oil and good for net importers. And visa
versa.

I get the impression the media are always talking about an imminent financial
catastrophe because eventually they'll be right and we'll forget how many
times they have been wrong.

~~~
danharaj
on the other hand, we know they'll be right eventually.

------
riskneural
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?

~~~
ifdefdebug
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...

~~~
nopassrecover
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.

~~~
riskneural
They are effectively paying banks to lend. The aim is to stimulate investment,
and also to drive inflation by making money less valuable.

------
acd
But it did not work in the 1990s for Japan, why would it work better a second
time?

The zero lower bound problem refers to a situation in which the short-term
nominal interest rate is zero, or just above zero, causing a liquidity trap
and limiting the capacity that the central bank has to stimulate economic
growth" [https://en.wikipedia.org/wiki/Zero_interest-
rate_policy](https://en.wikipedia.org/wiki/Zero_interest-rate_policy)

[http://www.thedailybell.com/exclusive-
interviews/35987/Antho...](http://www.thedailybell.com/exclusive-
interviews/35987/Anthony-Wile-Dr-Antal-Fekete-Blowing-Up-Modern-Austrian-
Economics--in-a-Good-Way/)

~~~
fennecfoxen
I was reading the Wall Street Journal analysis recently, which agrees this
won't help much, nothing that while it's designed to provoke investment "the
gap between corporate cash flow and investment stands at a record 6% of GDP.
If firms wanted to invest, they could go to their own vaults."

They recommend this measure only if combined with structural reform
(especially labor reform), observing "Japan’s rigid labor system has led firms
to refuse to hire more “regular” workers, whom they cannot lay off during
slack times. Instead they hire “nonregulars”" and do not invest in training
and human capital and doing little for these workers' futures. After that they
suggest fiscal stimulus, but observing that past "fiscal stimulus" has been
mostly handouts to inefficient farms in rural districts to buy votes they
instead recommend measures like making public high schools free (!!) and
getting sewage systems to the 40% of the population that doesn't have them
(!!!).

[http://www.wsj.com/articles/negative-rates-wont-save-
japans-...](http://www.wsj.com/articles/negative-rates-wont-save-japans-
economy-1454347656) (usual paywall dance applies)

------
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?

~~~
pjc50
Generally it _isn 't_ bad for you if you're not in the oil industry or an oil-
dependent country. Places like Venezuela, Nigeria, and even the fabulously
rich KSA are in trouble though.

It may be bad if you're in an energy-intensive business that's just made
investments in reducing its fuel costs, because now the payoff for those
investments is worse.

The US was just starting to transition to an oil exporter due to
unconventional oil, but now the price has collapsed the boom in North Dakota
etc goes away.

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

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

~~~
jevgeni
This is not that clear cut.

Dollar will appreciate against the yen. This will be advantageous to imports
from Japan and disadvantageous to U.S. exports.

I can't speculate on the intensity though.

~~~
narrator
Those yen loans will buy our bonds though. This will increase credit
availability. The whole system runs on credit availability. The housing bubble
should have made that clear.

~~~
riskneural
Credit slushes around like crazy for years. These days it flows into an S&P
trading near 20 P/E, negative government bond interest rates, corporate bond
interest rates below historical default rates, reinsurance treaties and cat
bonds trading below expected value, and what else?

Demand needs to pick up with credit availability or it just leads to asset
bubbles.

~~~
narrator
Here we have Grand Poobah of Keynesian economics and Nobel Laureate Paul
Krugman in 2002 calling for a Housing Bubble to replace the NASDAQ bubble:

[http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-
dip...](http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-
dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse)

>To fight this recession the Fed needs more than a snapback; it needs soaring
household spending to offset moribund business investment. And to do that, as
Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble
to replace the Nasdaq bubble.

The American economy loves a good asset bubble.

~~~
AlisdairO
That's completely out of context. He's not suggesting that it's a good idea,
he's discussing the Fed's motivations.

------
hysan
I understand the economic theory behind encouraging banks to lend, but I don't
see how this will encourage companies to borrow. I've been under the
impression that companies aren't willing to borrow because expansion/growth is
very risky right now primarily due to the population not wanting to spend
money. If people don't spend money, then expansions will fail simply because
the company wouldn't be able to bring in positive cash flow to pay back even a
0% interest loan. And people aren't spending money due to several factors.
Some big ones being:

1\. The general population doesn't want to spend money because of the lack
of/slow income growth. So savings appear safer.

2\. Aging population means fewer youths and more elderly people every year.
The elderly population would be living off of savings/pension so they are
essentially on a fixed (and slowly depreciating due to inflation) income.
Spending cannot increase here.

3\. Youths, meanwhile, are faced with entering an economy that isn't expanding
(direct result of companies not wanting to spend). So you aren't exactly
boosting the number of spenders in the economy.

Then there is the very quiet startup economy which is not helped by Japan's
hiring system. Salaries are seniority based and there is far less jumping
between companies because of that. Also, if a graduating student misses out on
the annual hiring season, they are very much unlikely to get hired for a
stable job until the following year at which point they will have to compete
with a fresh batch of graduates. So if you choose to go the startup route,
every year you do so results in worse earnings and a far more difficult road
to stability should your startup fail (which most do no matter what country
you live in).

So what I'm wondering is: How is the negative interest rate supposed to fix
the borrower side of the equation?

Supply means nothing if there is no demand. I haven't read much about
Abenomics, but the couple of things I have looked into all point to Abe
focusing only on the lending side. There doesn't seem to be anything that is
promoting confidence on the borrower & buyer side. What have I missed here?

------
fiatmoney
There's a huge difference between negative interest rates on the part of the
government as a lender and as a borrower.

As a lender (ie, giving out loans that only need to be paid back in part),
they mean the gov is essentially giving away money (which constitutes an
incredibly corrupt bargain with the banking establishment, but is obviously
distortionary on face regardless of who's getting the deal).

As a borrower (ie, charging to hold money at the fed) they're essentially
collecting a fee for various regulatory and quasi-seigniorage services. For
instance, if you require assets to be held in certain forms (central bank
deposits, government bonds...), a negative yield is basically charging for
providing an asset that satisfies those regulatory requirements.

------
asmosoinio
The Euribor, widely used in EU, has also been negative for about a year now:

[http://www.euribor-rates.eu/euribor-charts.asp](http://www.euribor-
rates.eu/euribor-charts.asp)

------
tosseraccount
Negative Interest Rates happened in the US in late 2008:

[http://blogs.wsj.com/marketbeat/2008/12/09/three-month-
bill-...](http://blogs.wsj.com/marketbeat/2008/12/09/three-month-bill-yield-
goes-negative/)

------
EGreg
Instead of pushing people to reinvest into the economy, there is a more
sustainable way:

1\. R&D AND ROBOTS

2\. TAX AUTOMATION

3\. BASIC INCOME FOR ALL, growing as tax revenues grow

This will let a shrinking population be more productive and align the
resources more usefully for everyone - including old people - to spend on
their needs.

~~~
marcosdumay
This, this, and this again.

I just don't understand how lending to banks at negative interest rates is
tried before basic income. Or better, I can imagine a few reasons, none of
them good.

Really, I don't get how people even accept bank settling rates that are
smaller than the short term government bonds. That's just taking money from
the people, and sending it for free to banks - no strings attached.

------
scotty79
> As Japan’s economic doldrums have lingered, its leaders have tried a number
> of tricks over the years, from ... to flooding the financial system with
> cash.

How was that done exactly and why it didn't work?

~~~
larrydag
I believe it was done through quantitative easing.
[https://en.wikipedia.org/wiki/Quantitative_easing#Japan_befo...](https://en.wikipedia.org/wiki/Quantitative_easing#Japan_before_2007)

------
kriro
I'm sure none of the hedge funds that were recently discussed as betting
against the Yuan had any insider information there.

"[...] ,in a Surprise, [...]"...riiiiiiight.

~~~
cperciva
Yen != Yuan.

~~~
kriro
I know but one of China's plans to strengthen the Yuan is moving away from the
$ towards a basket of currencies which includes the Yen (or at least having
that option). That option is weakened quite a bit by this move.

------
tamana
Is 0 interest actually a special value? It seems to me that interest rates are
only interesting relative to other investment options

------
matzipan
This article is a few days old... It's not a surprise anymore, and even 5 days
ago it wasn't a surprise, but expected.

------
leemailll
I am wondering how can japan sustains such an interest rate? Also, will this
create a real estate bubble?

------
sitkack
Japan is the future of us all, and it needs to transition to steady state
economy where the interest rate pays back in technology and efficiency, not
Yen. To be so rich, yet so poor because of how economies are structured is
ridiculous.

------
kaonashi
How is this supposed to create more creditworthy borrowers?

------
Patient0
This was news.... 3 days ago. I don't understand how it's rocketing up the HN
front page only now.

~~~
dang
We put it in the second-chance pool (described at
[https://news.ycombinator.com/item?id=10705926](https://news.ycombinator.com/item?id=10705926)
and earlier posts linked from there) because the story seems significant and
it wasn't discussed earlier. That gave it a few minutes near the bottom of the
front page and user interest took it from there.

Lord help us if we're not interested in things from 3 days ago.

