Fukushima to financial collapse: Bank of Japan announces negative interest rates on account deposits to prop up collapsing economy
by: David Gutierrez, staff writer
Japan’s economy grew only about 1.1 percent in 2015, and is predicted to grow only 1.7 percent this year.
The negative interest rate is only the latest effort by the administration of pro-nuclear prime minister Shinzo Abe to deliver on his ambitious – and thus far unsuccessful – plans to revitalize the country’s flagging economy. The Bank of Japan made it clear that it will cut interest rates even further if this current measure does not succeed at spurring an inflation rate of at least 2 percent.
Encouraging banks to lend more money
The new policy does not affect consumers, but only banks. By Japanese law, banks are required to hold a certain amount of money in reserve for their customers. The interest rate on this required amount has now been set to zero. The interest rate on any money above this amount has been set to -0.1 percent – meaning that banks must pay the government 0.1 percent interest on any money above that minimum.
This amounts to a “storage fee,” designed to encourage banks to keep only the minimum required amount of money out of circulation, said economist Sung Won Sohn of Cal State Channel Islands.
“They are essentially saying, ‘I am going to make it more expensive to keep money at the central bank,'” Sohn said. “It’s to encourage banks to lend money rather than depositing it.”
Prices in Japan have been consistently falling for decades. This has stifled economic growth, partly because it makes consumers more likely to hold on to their money against the chance that prices will fall even further.
It is unclear whether a negative interest rate will be enough to counter this problem, however. A handful of other countries have also made use of negative interest rates, including Denmark, Sweden, Switzerland and the European Central Bank. But economists say there’s no clear evidence that these measures have actually stimulated economic growth.
Abe’s nuclear plans won’t fix what’s actually wrong
In part, the problem is that Japan’s financial problems run much deeper than consumers who are slow to spend money or banks who are reluctant to lend it. The move to negative interest rates was actually spurred by concern over a flagging global economy, driven by falling oil prices.
“Global financial markets have been volatile against the backdrop of the further decline in crude oil prices and uncertainty such as over future developments in emerging and commodity-exporting economies, especially the Chinese economy,” Bank of Japan governor Haruhiko Kuroda said.
Kuroda was appointed by Abe in 2012, shortly after the latter’s election to prime minister. The pair began an aggressive campaign to overhaul Japan’s economy, which was initially praised for boosting consumer optimism and causing gains to the Japanese stock market. But Abe and Kuroda could not sustain these gains, and Japan quickly slumped back into recession.
Given all of Japan’s preexisting economic travails, the literal and metaphorical fallout from the 2011 Fukushima Daiichi nuclear disaster has certainly been no help. Fallout from the nuclear meltdowns led to the potentially permanent radioactive contamination of so much land that 310 square miles of residential and agricultural land have been abandoned. The economic value of this land is estimated to run between 250 and 500 billion U.S. dollars. Nearly 160,000 people have been evicted from their homes in the exclusion zone, perhaps permanently, creating an entire class of economic refugees.
Meanwhile, Tokyo Electric Power Company’s expensive efforts to clean up the failed plant continue failing to yield any results.
Sources for this article include: