Japan Is Selling Bonds Guaranteed To Lose You Money

February 9, 2016

Japan is venturing further into the terra incognito of negative interest rates, selling a 10-year government bond that actually costs its purchasers money over time.

In doing so, Japan joins a handful of European countries that have also lowered rates below zero.

The yield on the 10-year note sold by the Bank of Japan dipped to an unprecedented level of negative .05 percent, meaning that anyone who buys it will lose money.

But with global financial markets in turmoil, investors are evidently willing to pay a price for parking their money in an asset that is widely seen as very safe.

Like other central banks, the Bank of Japan has been steadily lowering interest rates for years in an effort to stimulate its economy. It cut rates so much that they eventually fell to zero, leaving the bank with no more ammunition

When interest rates fell to zero, it was widely thought that

With global stock markets in turmoil, investors have been pouring money into safe havens such as the yen. That’s sent the value of the yen rising against competing currencies such as the Euro, and made Japan’s exports less competitive.

Japanese officials are hoping that negative rates will lessen the pressure on the yen and stimulate growth.

“The hope is, and it’s a big hope, that going to negative would help to add more stimulus to the economy, particularly as the world economy slows,” said David Blanchflower, professor of economics at Darmouth and a former member of the Bank of England’s Monetary Policy Committee.

The Bank of Japan has a long history of using monetary policy to neglible effect. It long ago cut interest rates to stimulate its economy, but growth has remained well below expectations.

Like other major central banks, including the Federal Reserve, the Bank of Japan has now essentially lowered rates to zero.

long ago cut the interest rates on the money it pays for holding

The move by the Bank of Japan is aimed at stimulating its economy, but it increases the likelihood that other countries will try to do the same thing.

“In some sense this is an opening shot in a currency war. I’ve called it currency skirmishes,” “As one cuts and one goes to negative, others do too.”

in an effort to stimulate its economy, but growth has remained well below expectations. Like other major central banks, including the Federal Reserve, it’s essentially lowered rates to zero.

The analogy I would give, it’s like trying to play golf with only a one iron. You’ve only got one club, that’s what you’ve got to use.

“There’s that terrible thing called zero, which is looking and we all thought that the zero lower bound was as low as things could go. That was as much stimulus as you could put into the economy.”

“I just think its a desperation in the sense that you havent got much weapons left. So what do you do? It’s more of a case of well lets try this and see cause what else could we do? We’ve only got one club. We havent got many weapons left. We’ll try this and see.”

by preventing the Yen from gaining too much strength against competing currenciesBy doing so, the Bank of Japan is hoping to stimulate its economy, by keep its currency from

Copyright 2016 NPR. To see more, visit http://www.npr.org/.

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