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The backstory here is demographics. Japan has a shrinking, aging population and almost no immigration. With fewer people there are naturally less things bough
by dzdt 11y ago
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.
- derefr 11y agoQuestion: if the government doesn't want people "parking their money" in government bonds at all... then why not just stop issuing government bonds altogether, thus giving banks no choice but to invest in the market instead? Is that somehow impossible? Would it make the market illiquid? Are there laws concerning the required volatility caps for the securities backing savings accounts that would have to be relaxed?
- revelation 11y agoThey would presumably just invest it into other countries' government bonds? With the low interest rates, that has already been going on: borrow Japan money at low interest and buy a high interest government bond.
- ascorbic 11y agoThis isn't about government bond rates. It's the rate for overnight deposits at the central bank. Here's an article that talks about the alternative to this: holding cash. http://www.economist.com/news/finance-and-economics/21679231-central-banks-are-still-testing-limits-how-low-interest-rates-can-go-bankers http://www.economist.com/news/finance-and-economics/21679231...
- stephenboyd 11y agoLike most countries, Japan's government runs a deficit and depends on selling bonds for funding.
- jessaustin 11y agoHow does that work with a negative rate? Somewhat equivalently, how does that work with any rate whatsoever?
- patrickmcmanus 11y agoit means they can sell the bonds for less (i.e. pay less interest) because one source of competition, depositing the money rather than buying the bond, is less attractive for the captial. As with all credit - that's a great dynamic if you're using the funds for capital infrastructure to strengthen your overall situation, but kinda questionable if you're using it for living expenses.
- morgante 11y agoThis isn't about the rate on government bonds, it's the overnight rate on savings deposits.
- tosseraccount 11y agoGovernment is charging commercial banks negative interest rates.
- deleted 11y ago[deleted]
- Cthulhu_ 11y agoWouldn'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 11y agoThe 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.
- tosseraccount 11y agoMaybe Japan thinks it can benefit more from less congestion and higher wages. "Poor Fiscal policy" is likely a better explanation. If they need to "bite the bullet"; how about balancing the budget?
- augustnagro 11y agoVery few countries, communities, or individuals are willing to accept a fate of involuntary, slow recession. As suggested by previous commentators, social policies could possibly play a larger role in the long term Japanese recovery than fiscal stimulus. Opening the country to immigration may help rejuvenate the workforce, but would require significant upheavals of xenophobic Japanese culture. The government could use economic measures to encourage childbirth, but at a population density of 869 people per square mile, one must wonder how many more citizens the island can accommodate. The rational assumption that Japan should "bite the bullet ... [and] balance the budget" is not what the country will do, as the circumstances of its plight encourage irrationality.
- vetinari 11y agoImmigration will not solve the problem of aging population. In a generation or two, the immigrants would face exactly the same problem. Because with immigration, you didn't solve the underlying cause of why people don't have kids. You just muddled the observable status for a while.
- Hermel 11y agoThe irony of this approach is that the lower interest rates are, the more people need to save to reach their retirement goals. If this effect is stronger than the incentive to borrow and invest, low interest rates might actually curb consumption.
- spyspy 11y agoSaving for retirement using a savings account hasn't been a viable strategy in decades (at least in the US). People need to be encouraged to invest a significant portion of their money in other securities, and know that in the long term, they'll be much better off for it.
- toomuchtodo 11y ago> People need to be encouraged to invest a significant portion of their money in other securities, and know that in the long term, they'll be much better off for it. Until equities and other securities no longer provide the return needed for long term wealth accumulation.
- adevine 11y agoBut that's only for the long term. If you are in retirement, where you need to spend your savings, you want to keep your money in low risk assets. Central banks are trying their hardest to minimize your spending income by giving you no return on these less risky assets.
- spyspy 11y agoThe comment I was replying to only mentioned people saving for retirement, not people already retired.
- adevine 11y agoNot really. "The irony of this approach is that the lower interest rates are, the more people need to save to reach their retirement goals." That statement doesn't necessarily assume people are just socking their money away in a savings account while working. The goal of saving for retirement is that you need your money to outlast you. If your can expect much lower income during retirement, you'll need to have a bigger pot at the beginning of your retirement (i.e. you'll need to save more while working).
- eli_gottlieb 11y agoHave they tried changing their disastrous work culture so that Japanese citizens of childbearing age feel more free and energetic to form relationships?
- Opossum 11y agoDoes anybody have any good links explaining what caused the population decline in Japan?