Published: 23rd Mar, 2024
Context
Japan ended its negative interest rate policy, as the Bank of Japan (BoJ) raised interest rates for the first time since 2007. This marks an end to a prolonged period of ultra-loose monetary policy aimed at stimulating the economy.
What are negative interest rates?
- Negative interest rates are when central banks make their commercial counterparts pay to park their excess cash at the institution.
- This method is usually adopted during deflationary periods when consumers hold too much money instead of spending as they wait for a turnaround in the economy.
- Consumers may expect their money to be worth more tomorrow than today during these periods.
- When this happens, the economy can experience a sharp decline in demand, causing prices to plummet even lower.
- Japan’s objective behind the rate: To encourage spending and inflation in an ageing society with a negative population growth.
- These negative interest rates were first introduced by Swedish Riksbank in 2009. This was followed up others such as the central banks of Denmark, Switzerland and then Japan.
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