how negative interest rate doesn’t harm a country’s economy like in Japan?

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how negative interest rate doesn’t harm a country’s economy like in Japan?

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5 Answers

Anonymous 0 Comments

The idea is that it REALLY dis-incentives people just saving their money in a bank.

Meaning it pushes people to spend their money, either buying consumer goods, or by investing it. And consumer spending and investment is good for the economy.

Anonymous 0 Comments

The economy grows through spending, both by governments and people. To make people spend their money, the government has to ensure there is no lucrative offer by banks which will make people deposit their money. The money from households is thus circulated in the economy.

Anonymous 0 Comments

To be totally clear, not all interest rates in Japan were negative. The central bank sets rates that banks use not that consumers use. I’m not an expert on Japanese monetary policy, but for most Western countries central banks set (or strongly influence) the rates for lending between banks and the interest the Bank of Japan pays on deposits to consumer banks. Banks literally have cash accounts just like you and I, but those are held at the central bank.

If the deposit rate is negative, then banks will hold less cash, and instead use it to fund loans to business and consumers (at positive rates).

Anonymous 0 Comments

The Japanese have a very different financial culture that in the US.

The Japanese are so notoriously risk adverse and save so much money that a negative interest rate that would be economically disastrous in the US is needed in Japan to force people to spend money to keep the economy going.

The US population is generally very much in debt, takes risks, spend a lot of money on consumer goods and entertainment, and there’s a great deal of keeping up with the Jones’.

The Japanese meanwhile are notoriously frugal and save lots of money. They don’t spend lavishly on vacations or consumer goods and the big expenses in life are housing and education.

It’s ground into them at a very young age to save every yen you can, get educated, get a job, and work very hard until retirement.

Taking long vacations (more than a few days) is unheard of, or considered a once in a lifetime event for the Japanese. The typical Vacation is 1 extra day to a weekend because taking any longer is considered selfish because you are making your coworkers work harder in your absence. The traditional greeting when you get back from vacation is to apologize to your coworkers for making them work extra while you were gone.

The average Japanese also avoid the stock market like the plague because letting your cash sit in a bank and get hit by inflation is better than taking any risk with your savings.

The Japanese are also notoriously cheap, common consumer goods rarely go up in price because the population doesn’t tolerate it at all.

Puchi Puchi Uranai a chocolate manufacturer had to run ads on TV to apologize for increasing the price of the product from 20 yen to 30 yen (13 cents to 20 cents American). These ads became a meme in the US because of how silly it seemed, but it’s actually a very big problem in Japanese society. Companies that raise prices like that suddenly get shunned for being greedy and lose most of their customers overnight. Hence the apology campaign.

Anonymous 0 Comments

How does this affect their retirement savings?