TOE Alert: BOJ Negative Rates Backfire; People Move to Cash Instead of Stocks

posted by Richard Katz on February 11, 2016

Found in Japan, categorized in Macro

Tags: Richard Katz TOE Kuroda stocks

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Kuroda’s fundamental assumption is that firms, financiers and consumers would all like to make higher returns than small, or negative returns.


Key points in Richard Katz's report include:
Kuroda’s negative rate policy presumes low rates will force firms, banks and households to shift to higher-return risky assets
But Kuroda’s premises about firm and household behavior have been consistently mistaken
They are based on theories about what a perfectly rational person would do rather than looking at what real-world firms and households actually do
Ever since the BOJ pushed interest rates to the floor, beginning in 1995, households have shifted out of higher return time deposits at the banks into cash and ordinary deposits, which pay almost no interest
They have not increased their purchases of insurance annuities
Pension funds have gone up because people have no choice
Households have been consistent sellers of stocks in the past decade, selling even more when the market is rising a lot


About Richard Katz

Richard Katz

Richard Katz is Editor of The Oriental Economist Report, a monthly newsletter on Japan, as well as the semi-weekly TOE Alert e-mail service on Japan, and is also a special correspondent at Weekly Toyo Keizai, a leading Japanese business weekly.

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