February 26, 2016

IT'S A MATH THINGY:

Less than Zero in Japan (Koichi Hamada, 2/26/16, Project Syndicate)

In a bold attempt to reflate the Japanese economy, the Bank of Japan has now pushed interest rates on deposits into negative territory. Though this policy is not new - it is already being pursued by the European Central Bank, the Bank of Sweden, the Swiss National Bank, and others - it is uncharted ground for the BOJ. And, unfortunately, markets have not responded as expected.

In theory, negative rates, by forcing commercial banks essentially to pay the central bank to be able to park their money, should spur increased lending to companies, which would then spend more, including on hiring more employees. This should spur a stock-market rebound, boost household consumption, weaken the yen's exchange rate, and halt deflation. But theory does not always translate into practice; while the BOJ's introduction of negative rates almost immediately pushed the interest-rate structure lower, as expected, the policy's effects on the yen and the stock market have been an unpleasant surprise.

One reason for this is widespread pessimism about Japan's economy, reinforced by volatility in China, monetary tightening in the United States, and the collapse in world oil prices. But, as BOJ Governor Haruhiko Kuroda recently reported to the House of Councillors, Japan's economic fundamentals are generally sound, and pessimistic predictions are greatly exaggerated.

Japan's population shrinks for first time since 1920 (Vasudevan Sridharan, February 26, 2016, IB Times)

Japan's population has shrunk for the first time since 1920, according to the official census data released by Tokyo authorities. The numbers have fallen nearly by one million scaling it to 127.1 million in the last five years.

Japan's internal affairs ministry cited a number of reasons including deaths surpassing the birthrate and other social factors for the drop. The government has officially declared the population is in a declining trend. This makes Japan the only country among the world's 20 most populous countries that has a downward trend.

Posted by at February 26, 2016 9:10 AM

  

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