From Toru Fujioka and James Mayger at bloomberg.com:
The Bank of Japan shocked markets in January with negative rates. The policy had immediate effects on financial markets, even before it actually started on February 16.
Although most analysts don’t expect a change on Tuesday, they are expecting the central bank eventually to cut the rate further. Here’s a look at some effects of negative rates:
About 70 percent of government bonds have a yield of zero or below, meaning investors are paying to hold the debt. Pushing the yield curve down to make borrowing less costly and to encourage lending is the aim of the new policy, according to Governor Haruhiko Kuroda. However, those actions are hurting the bond market, with 69 percent of traders in February saying market function has declined compared with three months ago, according to a BOJ survey.
A 10-year, fixed-rate home loan carried a 0.8 percent rate last week, down from 1.05 percent before the introduction of the negative rate, according to a speech by Kuroda. Japan’s three biggest banks cut their deposit rate to a record low of 0.001 percent, meaning you receive 10 yen (9 cents) in income on a deposit of 1 million yen.
To continue reading: The Effects of a Month of Negative Rates in Japan
Astonishing. As Prechter wrote years (if not decades) ago, the stuff the central bank is selling (credit) has so little demand that they make it free and no one wants it.
It’s official. There are no longer enough good ideas and innovations in need of funding to keep industry in a compound growth curve. Firms right land left use funds to manipulate their share prices instead of what firms are “supposed” to do, which is either write checks to their owners (dividends), pay down debt or expand into (presumably) profitably lines.
Who could have imagined this condition from 1982?
It’s interesting how few economists recognize either the centrality of debt to the economic system or its diminishing marginal effectiveness. At least the Austrians get that credit-fueled booms produce credit-shrinking busts.