Does “Negative Interest” demodulate Japanese economic?

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Japanese central bank, Bank of Japan (BOJ) stunned the markets Friday by setting the country’s first negative interest rates, in a desperate attempt to keep the economy from sliding back into the stagnation that has dogged it for much of the last two decades.

The unexpected move shows the Bank of Japan ’s determination to fight global headwinds that threaten to tip the country back into deflation, a damaging cycle of price falls and weakening economy.

it also shows how few policy options the BOJ has left. The central bank has already purchased ¥80 trillion ($674 billion) in assets a year and put nearly a third of Japan’s massive bond market in its hands.

After three years of BOJ asset purchases, inflation expectations in Japan are sagging, and recent volatility in global markets has threatened to undo some of what the BOJ had achieved with its extraordinary easing: a weaker yen and higher stock prices.

This negative interest will stimulate the market in short term, no matter how, it casts a shadow on future Japanese economy and Japanese banks will face a more challenging environment as a result of negative rates, but won’t be badly hurt, analysts said. Most of the extra cash they have raised selling government bonds is now parked at the BOJ because domestic lending is sluggish and banks have a hard time finding attractive investments.

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