Japan – Why Negative Interest Rates?

A number of countries have implemented a negative interest rate policy (NIRP).  Why?

neg_int_rates

Generally Central Banks try to stimulate their country’s economy by lowering interest rates.  This encourages banks and businesses to issue loans or take out loans.

Japan had a +0.1 interest rate and had nowhere to go but negative to lower interest rates in order to stimulate their economy.

Here is how it works.  Banks usually pay interest to use your money.  Instead a negative interest rate works like a safe deposit box. You pay to have the bank hold your money.

Unfortunately, people would rather have cash which results in hoarding and does the opposite of stimulating the economy.

For more information, see this website:

http://www.bloombergview.com/quicktake/negative-interest-rates

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One thought on “Japan – Why Negative Interest Rates?

  1. Pingback: #FederalReserve Is In A Pickle | Michael E Kelley

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