2024-01-23 17:44:42

Live – Muhammad Al-KhoulyAlthough Japan is still considered one of the five largest economies in the world, the country of the samurai has been suffering from a crisis of difficulty in achieving stable growth rates for long periods for more than 20 consecutive years. This comes in light of the Japanese Central Bank’s insistence on following a “negative interest” policy. Intervening heavily in the economy and continuing to buy government bonds and sometimes stocks.

The negative interest rate that the Danish Central Bank implemented in 2012, followed by the European Bank in 2014, and the Swiss and Swedish Banks respectively in 2015. The Japanese Central Bank announced that it would continue to impose it, making Tokyo the only capital that currently applies a negative interest rate around the world.

Central banks, which aimed for this policy to address the significant decline in the “real interest” rate – at which monetary policy becomes in the middle zone between contraction and growth – wanted to raise inflation rates with interest rates approaching zero.

After stopping implementing this controversial policy for a period of time, the “Covid-19” pandemic in 2020 brought “negative interest rates” back to the forefront, in an environment in which many central banks were subject to several restrictions.

Despite this, “negative interest” policies have facilitated financial conditions and sometimes supported growth and inflation, but “negative interest” policies remain controversial from a political perspective, partly because they are often misunderstood and misinterpreted.

What is negative interest?

A “negative interest rate” policy (NIRP) refers to a central bank charging commercial banks for holding excess reserves to encourage banks to lend and store less cash, or in other words, under a negative interest rate, it would be expensive to hold cash, thus encouraging… Individuals spend and consume, which leads to a higher rate of inflation.

“Negative interest” can also be defined as one of the solutions to economic recession crises, as many individuals, companies, and financial institutions rush to save their money instead of investing and spending it.

In such cases, banks refrain from saving the money of individuals and companies, and as part of their role in encouraging increased consumption and spending, banks provide loans in exchange for obtaining a percentage of interest instead of saving money and paying a percentage of interest.

Through this policy, banks ensure that money supply levels are maintained in the markets instead of hoarding them, in addition to opening many new projects, thus achieving the goals of stimulating the overall economy, without being exposed to any financial risks or loss.

Negative interest in Japan

In Japan, unlike most countries in the world, the Bank of Japan announced, once once more, stabilizing key negative interest rates at their existing levels without change, while lowering its expectations for the inflation rate in the next fiscal year.

The Central Bank’s Monetary Policy Committee, headed by Kazuo Ueda, Governor of the Bank, decided to maintain the key interest rate at a negative level of “0.1%”, to be in line with most expectations, while the Japanese Central Bank kept the target range for long-term interest within zero%.

The Central Bank also kept the indicative rate of return on Japanese 10-year government treasury bonds in the bank’s market operations at the level of 1%, while the bank said that it would continue to buy government bonds without a maximum limit to maintain the return rate within zero%.

The bank kept its expectations for the inflation rate during the current year above the level of 2%, and reduced its expectations for the core inflation rate for the main consumer price index, which excludes the most volatile commodities such as food and energy, to 2.4%, while the previous expectations were 2.8%, while the bank raised its expectations for the core inflation rate in 2025 to 1.8% compared to 1.7%.

As for economic growth, the Central Bank expects the economy to grow at a rate of 1.2% during the current fiscal year, not 1% according to previous estimates, while it kept its growth expectations for next year at the level of 1% of gross domestic product.

Japanese Central Bank

However, the Japanese economy, one of the five largest economies in the world, is facing a major contraction due to a decline in private consumption by 0.4 percent, as a result of the health restrictions imposed by the government to contain the waves of the “Covid-19” pandemic, which negatively affected the services, tourism and entertainment sectors.

The Japanese economy has also had difficulty sustaining growth for 20 years; Which means that it goes through periods of growth and then periods of contraction and stagnation, and this has been the situation over the past 20 years. According to experts, the problem with the Japanese government is that it owes the largest percentage of debt of almost any other government in the world, and despite this, inflation has not risen to the levels found in Europe and America.

On the other hand, the Bank of Japan cannot raise interest rates; Because by raising the interest rate to only 1 percent, we will see a major debt crisis in Japan and other problems accumulating, due to the intervention of the Central Bank of Japan in the economy.

According to the CEO of the Quorum Center for Studies, Tariq Al-Rifai, the Bank of Japan not only bought most of the government debt from the market, but it also bought most of the Japanese stocks through investment funds, adding that this direct intervention in the economy led to the crisis that Japan is now facing.

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