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Author Topic: Japan adopts negative interest rate in surprise move  (Read 1151 times)
Lethn
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January 29, 2016, 11:18:34 PM
 #1

http://www.bbc.com/news/business-35436187

This is pretty big news guys for those who haven't heard yet.
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Blind Legs Parker
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January 29, 2016, 11:36:33 PM
Last edit: January 29, 2016, 11:51:47 PM by Blind Legs Parker
 #2

When I went to Japan recently they doubled-checked my luggage and other passengers' on a systematic basis at the customs, to make sure that we weren't carrying any gold (amongst all the other traditional drugs and weapons). It was my first time being controlled for gold by the customs. They even showed us a sign, explicitly showing gold bars on them, asking us if we had any  Cheesy. Has anyone else recently had the experience when going to Japan?
There's something to dig there: they're going in with the hope that people will get their money out from banks in order to actually invest in businesses and not in gold or in bitcoin. It tells you something about how desperate they are about their deflation. That's good news for us anyway. I heard that regular Japanese people liked to save money on their bank account and didn't really buy stocks or assets, but these negative interest rate here are only aimed at rich people, who of course know about these investments.
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January 29, 2016, 11:44:15 PM
 #3

So how exactly does negative interest work? They PAY you to borrow their money? Isn't that kind of like getting paid to do trash removal?
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January 29, 2016, 11:45:51 PM
 #4

So how exactly does negative interest work? They PAY you to borrow their money? Isn't that kind of like getting paid to do trash removal?
No, negative interest is that YOU pay to store the money in their bank. Sort of... similar to money laundering, except for the Bank of Japan it's "legal"
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January 29, 2016, 11:49:27 PM
 #5

So how exactly does negative interest work? They PAY you to borrow their money? Isn't that kind of like getting paid to do trash removal?
Normal bank account: people save their money and get annual interests = You earn money by leaving it in the bank.
Negative interest rate: people save their money and pay for it = You lose money by leaving it in the bank.

It's kind of like lending your money to people and giving them free interests at the same time. With a cherry on top.
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January 30, 2016, 02:23:33 AM
 #6

...

Lethn

That is BIG news.  But, we are seeing more of that happening.  NIRP as well as the related "War on Ca$H".  When it is better for Average Joes to hoard $100 FRNs under the mattress at home (rather than PAYING to keep it at the bank), then we know that more shoes are about to drop...

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When I went to Japan recently they doubled-checked my luggage and other passengers' on a systematic basis at the customs, to make sure that we weren't carrying any gold (amongst all the other traditional drugs and weapons). It was my first time being controlled for gold by the customs. They even showed us a sign, explicitly showing gold bars on them, asking us if we had any  Cheesy. Has anyone else recently had the experience when going to Japan?
There's something to dig there: they're going in with the hope that people will get their money out from banks in order to actually invest in businesses and not in gold or in bitcoin. It tells you something about how desperate they are about their deflation. That's good news for us anyway. I heard that regular Japanese people liked to save money on their bank account and didn't really buy stocks or assets, but these negative interest rate here are only aimed at rich people, who of course know about these investments.


That is a great news item B.L.P.  I have not seen anything like that at ANY Customs in my travels.  So far.  Your story does not surprise me at all.  CA$H and gold are two of the best defenses against NIRP.  They are also two good defenses against privacy invasion, which likely mean that BOTH will come under considerable scrutiny in the years to come.

Alas, it will become harder and harder to move gold internationally, at least in amounts over a few ounces at a time (a theme I explored a bit re at a thread: "How do you get gold onto the plane?").  Gold is so dense that it "lights up" the Xray machines brighter than other metals.  This means that about the best one can do re taking (undeclared) gold out (and now INTO another country -- Japan) of America is in very small amounts as gold coins there in your change purse...

Negative Interest Rates (NIRP) is an unnatural condition that will not last long.  It will likely end very badly.
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January 30, 2016, 02:45:47 AM
 #7

So how exactly does negative interest work? They PAY you to borrow their money? Isn't that kind of like getting paid to do trash removal?

No, it is strictly an overnight lending rate for banks that deposit money with the BOJ.  The point is to encourage banks to lend at interest instead of accepting a negative risk free rate.

I agree with orobtc that it will end badly.  This is a deflationary policy since it removes money from the economy.  At the point of maximum economic stress, banks will accept a negative rate of return in order to preserve capital.  It will worsen the downdraft.
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January 30, 2016, 03:04:05 AM
 #8

definitely big news, especially if this happens in more countries.  This can only mean Bitcoin will get stronger.

I love Bitcoin
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January 30, 2016, 03:22:07 AM
 #9

definitely big news, especially if this happens in more countries.  This can only mean Bitcoin will get stronger.
how exactly is this beneficial for bitcoin, are you saying people would transfer their bank savings to bitcoin?. i really dont see that happening, bitcoin is way too volatile, a person cant safely invest all their money in bitcoin. they would be too scared of the price changes.
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January 30, 2016, 03:35:36 AM
 #10

this is really not good.
I just hope that other more countries adapt this.
Well in some point , when it comes that a lot of of people,
already using bitcoins. Theres a possiblity that they can really use bitcoin as a bank.
Well that too unrealistic for now. but who knows,in the future.


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tabnloz
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January 30, 2016, 03:53:26 AM
 #11

Far from good, this is at the extreme end of 'emergency setting' that used to just be ZIRP. Its hard to go much further before it becomes a public micro bail in (retail nirp) or helicopter money. It also causes reactions in stocks and currencies that will result in trade wars sooner rather than later.
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January 30, 2016, 08:06:10 AM
 #12

definitely big news, especially if this happens in more countries.  This can only mean Bitcoin will get stronger.
how exactly is this beneficial for bitcoin, are you saying people would transfer their bank savings to bitcoin?. i really dont see that happening, bitcoin is way too volatile, a person cant safely invest all their money in bitcoin. they would be too scared of the price changes.

no but with all the bad things that arehappening around the banks, people will see the banks with a bad eye from now or even before(because of the current crysis)

i think many don't even know that bitcoin exist, so they do not have really a choice, and choose fiat because of this...
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January 30, 2016, 12:36:30 PM
 #13

Negative interest rate = anti-hoarding. The opposite of bitcoin. It is good for the circulation of money.
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January 30, 2016, 01:06:10 PM
 #14

So how exactly does negative interest work? They PAY you to borrow their money? Isn't that kind of like getting paid to do trash removal?
Normal bank account: people save their money and get annual interests = You earn money by leaving it in the bank.
Negative interest rate: people save their money and pay for it = You lose money by leaving it in the bank.

It's kind of like lending your money to people and giving them free interests at the same time. With a cherry on top.

very good description , was about to type this but u got first and typed it in a better way. but this pretty much sums it up.

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January 30, 2016, 02:47:34 PM
 #15

It is just a question of months until the FED will decrease the interest rate again. The USA could not increase the rate when all other central banks (Bank of England, Bank of Japan, ECB, Canada Central Bank, Swiss Central Bank, and so on) are constantly decreasing the interest rate or holding the current low rate. This is really a very very bad sign for the world economy. I fear the worst.
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January 30, 2016, 04:39:08 PM
 #16

I'm not sure, are there other banks that someone can deposit to in Japan? Wouldn't this negative interest reduce the amount of people that use the bank, drastically? People are pretty crazy about money, so I'm sure that they would probably switch to a different bank
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January 30, 2016, 05:10:20 PM
 #17

I'm not sure, are there other banks that someone can deposit to in Japan? Wouldn't this negative interest reduce the amount of people that use the bank, drastically? People are pretty crazy about money, so I'm sure that they would probably switch to a different bank

Probably, but just because they do not take the time to do the math. Here in Colombia we receive less than 1% annual interest rate and our inflation just grew to ~7%. Yet, many people still hold their savings in a bank (storing them in your house is way too risky, and to get into the market you need a few million COPS that not everyone here has -not to mention that most people is not even into saving-).

According to a quick Google search I just did, Japan's inflation is close to 0%. So, (a small) negative interest would still be a good deal if you compare it to the situation in my country (which is probably the same situation in some other countries).

Most people would blindly put their money in a 5% interest rate savings account even if the inflation was 30%... and I am not kidding, people here bitches about low increments in the minimum wage using as examples increments back in the 80s (when increments were around 20%, but our inflation was close to 30%...).

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January 30, 2016, 05:51:07 PM
 #18

Well the Government is doing it to induce spending by people, the banks have to pay -0.1% of the funds being deposited to the Central Bank. This was done basically because a lot of people in Japan are growing richer and have the habit of saving to an extent where the money flow in the economy is slow. This move should boost investment.
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January 30, 2016, 06:57:21 PM
 #19

I'm not sure, are there other banks that someone can deposit to in Japan? Wouldn't this negative interest reduce the amount of people that use the bank, drastically? People are pretty crazy about money, so I'm sure that they would probably switch to a different bank

Probably, but just because they do not take the time to do the math. Here in Colombia we receive less than 1% annual interest rate and our inflation just grew to ~7%. Yet, many people still hold their savings in a bank (storing them in your house is way too risky, and to get into the market you need a few million COPS that not everyone here has -not to mention that most people is not even into saving-).

According to a quick Google search I just did, Japan's inflation is close to 0%. So, (a small) negative interest would still be a good deal if you compare it to the situation in my country (which is probably the same situation in some other countries).

Most people would blindly put their money in a 5% interest rate savings account even if the inflation was 30%... and I am not kidding, people here bitches about low increments in the minimum wage using as examples increments back in the 80s (when increments were around 20%, but our inflation was close to 30%...).
That is true. By looking at the bigger picture, it doesn't seem that bad to choose to deposit at the Bank of Japan, even with the negative interest. You would still be getting a better result at the end of the year.

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January 30, 2016, 06:58:03 PM
 #20

Negative interest rate = anti-hoarding. The opposite of bitcoin. It is good for the circulation of money.

People will withdraw their money from the accounts and store it at home.
Believing that this move will help that people will spend their earnings/savings is just dumb imo.
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