On Tuesday last the Japanese central bank instituted a policy of negative interest rates, in effect charging commercial banks to park their money with the Bank of Japan. One of the immediate repercussions of this move was that the commercial banks cut their already paltry interest rates for individual savers. The rate now stands at 0.001%.
Yes, 0.001%.
What this means in practice is that if you deposit 1,000 euro (I know, I know it should be yen, but using Euros highlights the effect better), after one year, you will receive exactly one cent of interest.
Yes, that's 1,000.01 twelve months later.
The move smacks of desperation. The Japanese government urgently needs to kick start some form of inflation, any form of inflation, in order to counter the frightening amount of public debt the country has amassed. For a number of years now the Bank of Japan have set an inflationary target of 2% and for the same number of years they have persistently missed this target. Even with massive public spending and the Bank of Japan buying gazillions of government bonds.
The root cause though isn't economic, its demographic. An aging, shrinking population means a shrinking work force, which means less consumer spending, which means less demand for Honda cars and Sony TVs, which means less workers are needed, which leads to a shrinking work force, and, well, you can see where this is going. The obvious solution is immigration but that is something the current Japanese government won't even contemplate, let alone discuss.
Meanwhile, I'm thankful I still have my AIB savings account which is giving me a staggering (by Japanese standards) 0.25% annual return.
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