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In some sense this sort of article confuses me. This is a different economy, with its own legislative framework and where the people speak a language that is no

• verticalscaler 3y ago
  Welcome to CNN.
  • rafram 3y ago
    I mean, the article did a pretty good job of explaining the situation to a general financially-savvy audience considering how complex it is.
• athrun 3y ago
  > IMO it'd be sensible to let the markets set the interest rate I'm not sure what you mean by this. The interest rate policy is linked to the money creation/destruction process, which is ultimately a centralised state function. Banks create/destroy the money, but the pace at which they can do so is governed by interest rates. I don't understand how the market would be able to set that rate. You'd need multiple entities acting as "central banks", and somehow competing? What do you have in mind?
  • roenxi 3y ago
    I'd prefer to see a policy where either the schedule for monetary creation was publicised several years in advance, or where a constant amount of money in the economy was targeted rather than a specific interest rate (I'd go with the former, it seems harder to game). We've actually got exactly that in Bitcoin which is making it an interesting experiment for me, although it is too cumbersome to act as money we'll get to see how that sort of system performs in a market. The idea that it is proper to adjust the rate of monetary creation based on the market is suspect. It can't create wealth, it can create confusion and is looks suspiciously like a distortion that results in asset owners becoming wealthy at the expense of someone else. Asset prices appear to inflate more in line with the M2 - somewhat faster than the CPI, suggesting that asset owners are getting more benefits from this policy than anyone else. I don't see why they need an extra boost given that they already own productive assets. Basically; at the moment the system is designed to penalise anyone who tries to preserve wealth in actual cash and as collateral damage prices keep eternally climbing. Neither of those things is helpful and if anything it just makes it harder for people to make rational decisions. It is confusing policy with no theoretical upside that has been drawn to my attention.
    • littlestymaar 3y ago
      Well, bitcoin shows you exactly what to expect in such a situation: it makes a terrible currency that nobody ever wants to spend. I know many people are convinced that the value of money comes from its scarcity, but it's actually a very limited view: An even more important characteristic of money is that it must be abundant enough. That's why humanity spent most of history using gold and silver as support for value and not diamond and platinum. That's the neat part with credit-based money: it's generally produced in just the amount you need for the economy. But another problem arise in case of financial crisis: banks can run out of liquidity if other banks refuse to lend them, and it has a catastrophic effect. That's what central banks are made for: they are lenders of last resort. The problems you are referring to aren't really related to monetary policy itself, but about fiscal policy: when you try solving all problems (namely aggregate demand being too low) with monetary policy alone, you end up in weird places.
      • 3y ago
  • detourdog 3y ago
    I think the original comment might be getting at the cultural differences between the US and Japan. It is plausible to me that the group that owns the most Japanese Yen get to set the rate. That group can decide to tread water or start to charging outsiders for use of the capital. Warning the above is wild speculation from a stranger on the internet.
    • pjc50 3y ago
      All central banks get to set a "floor" rate by virtue of being a central bank. Commercial banks then charge a "vig" on top of that.
• alberth 3y ago
  > the frame that interest rates are like a little knob that the central planning committee adjusts is suspect … IMO it'd be sensible to let the markets set the interest rate Are you suggesting there’s no correlation between market set interest rates and central bank rates?
• toyg 3y ago
  > where the people speak a language that is not English How would that be relevant...? > they are basically a clone of the US I don't necessarily see this frame in the article. If you mean that it cites "american" indicators, it's because those are pretty generic economic indicators shared by pretty much any capitalist economy. Are they the full picture? Certainly not (their infamous public debt, just to mention one, is not mentioned), but mentioning them doesn't imply that they are "basically a clone of the US". > it really needs to be part of a "Japan Economy" wiki I mean, each and every country needs its wiki, but life is short. > IMO it'd be sensible to let the markets set the interest rate I'm not sure what you mean - leaving banks free to set interest rates? Nobody in the world does this currently. Or just having an independent central bank? The BOJ is more or less as independent from government as the Federal Reserve or the European Central Bank (at least formally).
  • roenxi 3y ago
    >> > where the people speak a language that is not English > How would that be relevant...? 私の懸念は、私が同意しないことと、一次資料のレビューには障壁があることです。グーグル翻訳でも。
    • dghlsakjg 3y ago
      Cultural differences exist where nuance is lost in (google) translation, sure, but math is math.
      • roenxi 3y ago
        Economic policy isn't math though, is about what a rational decision maker would do. We can model some parts of that using mathematics, but large parts are hooked up to the local legal framework. Take US student loans for example - the market doesn't make any sense unless you are aware of the special rules around bankruptcy. In fact, the entire US lending market doesn't make sense unless you know about bankruptcy and bankruptcy law is by no means a safe basic assumption.
    • toyg 3y ago
      Stats are stats and money is money. Some nuances might require local sources, but macroeconomic trends are just hard numbers.
• ThrowawayTestr 3y ago
  Japan is not a mystical fantasy land where the implementation of fiscal policies is radically different. And interest rates are set by the central bank, it's literally a knob where a central planning can influence the economy.
  • bobthepanda 3y ago
    Japan is a bit of a unicorn amongst central banks and has historically relied on a range of unorthodox policy at its central bank. There was window guidance in the bubble era, there was the invention of QE and negative interest rates, and during the 2020s the Bank of Japan became the largest shareholder in the Nikkei. Japan has done a lot of innovative things trying to claw itself out of the post bubble hole.
    • ThrowawayTestr 3y ago
      I'm not saying their economy isn't unique, just that money works the same way regardless of country.
• pjc50 3y ago
  The central bank is merely a very large market participant. People are welcome to not pay Bank of Japan 0.1% to look after their money (because that's what negative interest rates are) if they want. The economy functions the same way in Japan in the same way that computers function the same way in Japan, just with a different input method and currency symbol (円).
  • AJ007 3y ago
    Unlike computers, the economy isn't deterministic (among other differences.) In order to understand the Japanese economy today, one really needs to read books about Japan's bubble in the 1980s. The interest rates Japan experiences today are the result of this. In a way, that makes certain aspects their economy very different from that of any other major Western or Asian country. I would recommend reading "The Bubble Economy" -- which was published in 1992 and thus gives a more closer point of view. The author believed there was an imminent and abrupt price correction, it turn out to be worse and drawn out over decades. Secondly, "Devil Take the Hindmost: A History of Financial Speculation", published in 2000. The part about Japan's bubble was more concise than the "The Bubble Economy" and has some bits the first missed. One of the best things about both of these books is they were written before the subsequent dot com bubble and housing bubble in the US. Japan provides a good lesson on just how drawn out recovering from gross misallocations of capital during bubbles can be, even in very wealthy and developed countries. In Japan's case, it has had a multi-generational impact which continues today.
    • michaelt 3y ago
      > In order to understand the Japanese economy today, one really needs to read books about Japan's bubble in the 1980s. The interest rates Japan experiences today are the result of this. Have they really not changed their thinking in all that time? We in the west have had at 3-4 major financial crashes in the intervening period - and innumerable changes in government policy.
    • pjc50 3y ago
      The particular conditions which lead to Japanese "stagflation" are complicated and somewhat beyond me (and, seemingly, Japanese policymakers), but the basic operation of trying to cut interest rates to raise inflation and raise interest rates to cut inflation is something that should work across all normal-looking market economies. It did take a long time to take effect in Japan, probably because the model would require negative rates and works less well in that region.
• stephc_int13 3y ago
  Markets are very good at pricing by integrating past and current data on a very large scale, but they have almost non-existent predictive power. Markets are incapable of strategy and thus can't be trusted with all decisions.
• littlestymaar 3y ago
  > but IMO it'd be sensible to let the markets set the interest rate. The evidence that markets are weak at setting interest rates is itself quite flimsy. But that's what's happening (at least with the Fed, it's difference for ECB): the federal funds rate is actually a market rate! What the Fed does is that it sets two other rates that act as a ceiling (the discount rate) and a floor (the deposit rate) for the Federal funds rate. And then the Fed decides a target rate for the Federal funds market, that fits with their inflation target. If you remove the Fed out of the equation (just for this aspect of their intervention), the the Federal funds rate will move freely but then you have no guarantees that you'd have decent level of inflation…
• Dalewyn 3y ago
  >This is a different economy, with its own legislative framework and where the people speak a language that is not English. But the frame is that they are basically a clone of the US and a policy change in Japan is equivalent to the policy change that sounds the most similar in the US. Japan is practically the 51st state in the union, geopolitically speaking.
  • pjc50 3y ago
    Nah, that's the UK.
    • Dalewyn 3y ago
      The UK is the 0th state in the union.
• mathgradthrow 3y ago
  The argument that we cant draw conclusions about their interest rate policies because "they dont speak English there" is bananas.
• lkrubner 3y ago
  "IMO it'd be sensible to let the markets set the interest rate." We tried that and it was completely untenable. During the 1700s and 1800s more and more of society switched from the non-monetary economy to the monetary economy, and more people went out and got jobs for money, and at the same time economic growth became entirely dependent on debt, so that by the late 1800s the Western nations were witnessing wild swings, where the economy would grow 15% one year and then crash into a 10% depression the next year, then grow 14% a year for two years and then have another major depression. The instability was leading to revolution in many countries. In the end, the government had to step in and regulate the speed at which new debt could be issued, so as to smooth out the business cycle. Britain did this first. In the USA the idea of a central bank was much contested during the 1800s but finally it was made official in the early 1900s.
• beiller 3y ago
  We could let the market set interest rates but they would be much higher. Banks would be very unhappy since they have loaded up on the rock bottom rates. You'd see many banks go under similar to SV bank. This is a world economy and they are all somewhat aligned on their interest rate policies. Those that don't fall in line will see a currency repricing (and some like Japan want that to some extent).
• hyperpape 3y ago
  What they did, lowering rates to fight a deflationary environment with low growth, is the exact same strategy that the US has used for many years (and Europe as well). The difference is that the situation was much more severe, which made them actually resort to negative rates. Now that worldwide inflationary pressure is much higher, you're seeing rates rise everywhere. Of course, rates are different from country to country, but directionally, there's nothing novel about what's happening here. You're saying you can't generalize, but on the contrary, there's a very obvious generalization here.
• mo_42 3y ago
  > IMO it'd be sensible to let the markets set the interest rate. Actually, markets do set most of the interest rates. The central bank only sets one (to be technically correct several) specific interest rate. Usually, this rate sets the price for short-term refinancing operations of private banks with the central banks. Obviously, other interest rates are influenced by this rate indirectly. I guess the reason for this approach is that banks can react flexibly to high demand for central bank money (aka cash). For example, if people want to hold more cash suddenly, the central bank will swap cash with good assets from commercial banks (aka printing money) so that they can hand it out to them. With a fixed money supply, interest rates would skyrocket in this case. Just because I want to have more cash rather than see that number on my checking account doesn't make a difference economically and so it should also not influence the interest rate.
• impossiblefork 3y ago
  The value of the collaterals of the loans in all functioning currencies is much greater than the value of the physical cash. Thus if you hold the cash, you can attempt a corner in order to obtain a large fraction of the collateral: you hold the cash so that people can't get it and default on their loans. Thus you obtain a large fraction of the collateral, something of enormous value. What central banks do when you try to do this is that they start printing money, thus this scheme can be stopped. If there's no central bank to do this, the self-interested cash holders could potentially coordinate something like this. I think the cause of yield curve inversion can be something of this sort, because it can mean that people expect a crash and want cash on hand to buy assets once it has happened, so they don't want to lock their money up for six months, even if the yield is quite high.