What to Make of Japan’s New Negative Interest Rate

The Diplomat
February 2, 2016

The Bank of Japan’s decision last Friday to begin imposing a negative 0.1 percent interest rate on any new excess reserves beginning February 16 was its way of signaling “willingness to pursue a negative interest rate program (NIRP) without actually doing it,” Sasakawa USA’s Tobias Harris says in a February 3 article by Mina Pollmann published in The Diplomat.

Harris explains in the article that this action could have unintended negative consequences.

“First, a NIRP could destabilize the financial sector, particularly smaller, regional banks,” Harris said in the article. “Based on [BOJ Governor Haruhiko] Kuroda’s remarks, it seems as if this was a major reason why he didn’t push for applying a negative interest rate to existing reserves… Second, there’s the risk that this could spark another round of competitive devaluations by the BOJ’s rival central banks in Asia and worldwide. Calling it a currency war may be too dramatic, but it is unlikely that the BOJ will have the last word.”

Read the full article here.




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