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Negative Interest Rates: The Bank of Japan Experience

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Despite Prime Minister Shinzo Abe’s new economic strategy, known as “Abenomics,” being enacted in 2012, Japan’s deflationary spiral continued.

In an effort to stimulate economic growth, early in 2013 the Bank of Japan (BOJ) stepped in, using quantitative and qualitative monetary easing (QQE) with the aim of achieving an inflation target of 2% in two years. At that time, the short-term prime interest rate was 1.475% per year. Could an unconventional monetary policy work?

Despite all efforts, Japan’s economy remained weak. On 20 January 2016, the BOJ’s governor, Haruhiko Kuroda, held a policy meeting in Tokyo, where the decision was made to introduce QQE with a negative interest rate.

Learning Objective:

  • To give students an understanding of the role and responsibilities of a central bank, and to highlight how a government should honor the decisions a central bank makes and not casually revoke them.
  • To help students understand the relationship between a central bank and markets, and how monetary policy affects different markets. The case llustrates how a central bank must be fully transparent.
  • To give students the opportunity to explore how central bank measures can spur economic growth and expose issues arising from an overreliance on monetary stimulus.

Year of Publication: 2020
Ref. No.: 20/651C
Discipline: Economics & Business Policy
Industry: Banks & Diversified Financials, Government
Country: Japan
Company: The Bank of Japan
Languages: English
Pages of Text: 14