What Negative Rates Could Mean for Japan

A pedestrian walks past a stock-market indicator board in Tokyo on Friday.

Franck Robichon/European Pressphoto Agency

Japan has joined the negative interest-rate club. So what happens next? Many Japanese will be looking for clues in Europe, where a handful of central banks—including the European Central Bank—already have pushed interest rates into negative territory.
Back in December, when the ECB further lowered its negative deposit rate, The Wall Street Journal examined the impact of negative interest rates on the eurozone, and on three of its smaller neighbors—Sweden, Denmark and Switzerland. Following are excerpts of that story.

Europe’s negative-rate adventure has only just begun, and it is far from clear how it will end. The ECB’s negative deposit rate has helped bring down the value of the euro, a good thing for European exporters as their goods are less expensive for overseas buyers. But Europe’s economy still musters only meager growth. And inflation is still stuck near zero.

Much of that will sound familiar to longtime watchers of Japan’s economy—which has also struggled with persistently low inflation and weak growth, despite a massive program of asset purchases designed to stimulate the economy. And the Bank of Japan—much like the ECB—is keen to weaken its currency: A lower yen should help spur inflation and provide a boost to the nation’s massive export sector.
But will a weaker currency have the desired effect? And can negative rates give a broader boost to the economy by pushing companies and consumers to lend or spend, rather than hold onto their cash? The evidence from the eurozone suggests the BOJ may struggle.