In some sense this sort of article confuses me. This is a different economy, with its own legislative framework and where the people speak a language that is not English. But the frame is that they are basically a clone of the US and a policy change in Japan is equivalent to the policy change that sounds the most similar in the US. And even in English speaking countries, the frame that interest rates are like a little knob that the central planning committee adjusts is suspect. How the rate is influenced is quite important too.
There is so much context required to interpret this, it really needs to be part of a "Japan Economy" wiki rather than a stand alone article.
But best of luck to Japan. Nobody ever asks for my opinion, but IMO it'd be sensible to let the markets set the interest rate. The evidence that markets are weak at setting interest rates is itself quite flimsy.
> IMO it'd be sensible to let the markets set the interest rate
I'm not sure what you mean by this. The interest rate policy is linked to the money creation/destruction process, which is ultimately a centralised state function. Banks create/destroy the money, but the pace at which they can do so is governed by interest rates.
I don't understand how the market would be able to set that rate. You'd need multiple entities acting as "central banks", and somehow competing?
I'd prefer to see a policy where either the schedule for monetary creation was publicised several years in advance, or where a constant amount of money in the economy was targeted rather than a specific interest rate (I'd go with the former, it seems harder to game). We've actually got exactly that in Bitcoin which is making it an interesting experiment for me, although it is too cumbersome to act as money we'll get to see how that sort of system performs in a market.
The idea that it is proper to adjust the rate of monetary creation based on the market is suspect. It can't create wealth, it can create confusion and is looks suspiciously like a distortion that results in asset owners becoming wealthy at the expense of someone else. Asset prices appear to inflate more in line with the M2 - somewhat faster than the CPI, suggesting that asset owners are getting more benefits from this policy than anyone else. I don't see why they need an extra boost given that they already own productive assets.
Basically; at the moment the system is designed to penalise anyone who tries to preserve wealth in actual cash and as collateral damage prices keep eternally climbing. Neither of those things is helpful and if anything it just makes it harder for people to make rational decisions. It is confusing policy with no theoretical upside that has been drawn to my attention.
I think the original comment might be getting at the cultural differences between the US and Japan.
It is plausible to me that the group that owns the most Japanese Yen get to set the rate. That group can decide to tread water or start to charging outsiders for use of the capital.
Warning the above is wild speculation from a stranger on the internet.
"IMO it'd be sensible to let the markets set the interest rate."
We tried that and it was completely untenable. During the 1700s and 1800s more and more of society switched from the non-monetary economy to the monetary economy, and more people went out and got jobs for money, and at the same time economic growth became entirely dependent on debt, so that by the late 1800s the Western nations were witnessing wild swings, where the economy would grow 15% one year and then crash into a 10% depression the next year, then grow 14% a year for two years and then have another major depression. The instability was leading to revolution in many countries. In the end, the government had to step in and regulate the speed at which new debt could be issued, so as to smooth out the business cycle. Britain did this first. In the USA the idea of a central bank was much contested during the 1800s but finally it was made official in the early 1900s.
The central bank is merely a very large market participant. People are welcome to not pay Bank of Japan 0.1% to look after their money (because that's what negative interest rates are) if they want.
The economy functions the same way in Japan in the same way that computers function the same way in Japan, just with a different input method and currency symbol (円).
Unlike computers, the economy isn't deterministic (among other differences.)
In order to understand the Japanese economy today, one really needs to read books about Japan's bubble in the 1980s. The interest rates Japan experiences today are the result of this. In a way, that makes certain aspects their economy very different from that of any other major Western or Asian country.
I would recommend reading "The Bubble Economy" -- which was published in 1992 and thus gives a more closer point of view. The author believed there was an imminent and abrupt price correction, it turn out to be worse and drawn out over decades.
Secondly, "Devil Take the Hindmost: A History of Financial Speculation", published in 2000. The part about Japan's bubble was more concise than the "The Bubble Economy" and has some bits the first missed.
One of the best things about both of these books is they were written before the subsequent dot com bubble and housing bubble in the US.
Japan provides a good lesson on just how drawn out recovering from gross misallocations of capital during bubbles can be, even in very wealthy and developed countries. In Japan's case, it has had a multi-generational impact which continues today.
> but IMO it'd be sensible to let the markets set the interest rate. The evidence that markets are weak at setting interest rates is itself quite flimsy.
But that's what's happening (at least with the Fed, it's difference for ECB): the federal funds rate is actually a market rate! What the Fed does is that it sets two other rates that act as a ceiling (the discount rate) and a floor (the deposit rate) for the Federal funds rate. And then the Fed decides a target rate for the Federal funds market, that fits with their inflation target. If you remove the Fed out of the equation (just for this aspect of their intervention), the the Federal funds rate will move freely but then you have no guarantees that you'd have decent level of inflation…
> the frame that interest rates are like a little knob that the central planning committee adjusts is suspect … IMO it'd be sensible to let the markets set the interest rate
Are you suggesting there’s no correlation between market set interest rates and central bank rates?
> IMO it'd be sensible to let the markets set the interest rate.
Actually, markets do set most of the interest rates. The central bank only sets one (to be technically correct several) specific interest rate. Usually, this rate sets the price for short-term refinancing operations of private banks with the central banks. Obviously, other interest rates are influenced by this rate indirectly.
I guess the reason for this approach is that banks can react flexibly to high demand for central bank money (aka cash). For example, if people want to hold more cash suddenly, the central bank will swap cash with good assets from commercial banks (aka printing money) so that they can hand it out to them. With a fixed money supply, interest rates would skyrocket in this case. Just because I want to have more cash rather than see that number on my checking account doesn't make a difference economically and so it should also not influence the interest rate.
The value of the collaterals of the loans in all functioning currencies is much greater than the value of the physical cash.
Thus if you hold the cash, you can attempt a corner in order to obtain a large fraction of the collateral: you hold the cash so that people can't get it and default on their loans. Thus you obtain a large fraction of the collateral, something of enormous value.
What central banks do when you try to do this is that they start printing money, thus this scheme can be stopped. If there's no central bank to do this, the self-interested cash holders could potentially coordinate something like this.
I think the cause of yield curve inversion can be something of this sort, because it can mean that people expect a crash and want cash on hand to buy assets once it has happened, so they don't want to lock their money up for six months, even if the yield is quite high.
Japan is not a mystical fantasy land where the implementation of fiscal policies is radically different. And interest rates are set by the central bank, it's literally a knob where a central planning can influence the economy.
Japan is a bit of a unicorn amongst central banks and has historically relied on a range of unorthodox policy at its central bank. There was window guidance in the bubble era, there was the invention of QE and negative interest rates, and during the 2020s the Bank of Japan became the largest shareholder in the Nikkei.
Japan has done a lot of innovative things trying to claw itself out of the post bubble hole.
We could let the market set interest rates but they would be much higher. Banks would be very unhappy since they have loaded up on the rock bottom rates. You'd see many banks go under similar to SV bank. This is a world economy and they are all somewhat aligned on their interest rate policies. Those that don't fall in line will see a currency repricing (and some like Japan want that to some extent).
What they did, lowering rates to fight a deflationary environment with low growth, is the exact same strategy that the US has used for many years (and Europe as well). The difference is that the situation was much more severe, which made them actually resort to negative rates.
Now that worldwide inflationary pressure is much higher, you're seeing rates rise everywhere. Of course, rates are different from country to country, but directionally, there's nothing novel about what's happening here.
You're saying you can't generalize, but on the contrary, there's a very obvious generalization here.
> where the people speak a language that is not English
How would that be relevant...?
> they are basically a clone of the US
I don't necessarily see this frame in the article. If you mean that it cites "american" indicators, it's because those are pretty generic economic indicators shared by pretty much any capitalist economy. Are they the full picture? Certainly not (their infamous public debt, just to mention one, is not mentioned), but mentioning them doesn't imply that they are "basically a clone of the US".
> it really needs to be part of a "Japan Economy" wiki
I mean, each and every country needs its wiki, but life is short.
> IMO it'd be sensible to let the markets set the interest rate
I'm not sure what you mean - leaving banks free to set interest rates? Nobody in the world does this currently. Or just having an independent central bank? The BOJ is more or less as independent from government as the Federal Reserve or the European Central Bank (at least formally).
>This is a different economy, with its own legislative framework and where the people speak a language that is not English. But the frame is that they are basically a clone of the US and a policy change in Japan is equivalent to the policy change that sounds the most similar in the US.
Japan is practically the 51st state in the union, geopolitically speaking.
In college I took a couple classes beyond the required Econ 101/102 because I found the subject interesting, not even enough for a minor, but even I am astounded by the level of ignorance that gets upvoted to the top of econ threads on this site.
This is an article about Japan raising its interest rate, and people are using it to discuss the abolishment of central banks, or of state-backed currency itself in favor of cryptocurrency.
For those that don't see this: it'd be like if you wandered into a forum where an article was posted about some new product Google released, and the discussion is dominated by a bunch of people talking about how all C++ code should be abolished in favor of Python.
> it'd be like if you wandered into a forum where an article was posted about some new product Google released, and the discussion is dominated by a bunch of people talking about how all C++ code should be abolished in favor of Python.
As an econ major, it was always terrifying working with the non-econ students required to take some of the courses. Some people just didn't grasp the underlying concepts, or understand why understanding was important.
To add on to the commentators below, Foreign Bureaus are increasingly shutting down and being replaced with freelancers [0]
A lot of the degradation in "MSM" appears to be due to the severe cost cutting occurring within News Organizations, leading to more sensationalism, less hard reporting, and way less editing and fact checking.
And this is happening in the UK (BBC layoffs, Guardian almost exclusively using freelancers), Canada (CBC layoffs, BCE layoffs), and much of Western Europe as well.
The era of Amanpour reporting in the middle of a warzone are long gone, and non-Western alternatives are government owned and share similar biases (eg. Al Jazeera and anything remotely related to Qatar's mortal archrivals Saudi or UAE, CGTN and China's world view, WION and Indian media's tendency to overexaggerate, etc).
I'm really interested to watch this play out. Since I was a teen Japan went from taking over the USA. The watermark might have been when Japanese banks bought Rockefeller Plaza. They just spent a whole generation at zero interest.
This is really exciting to see the effects of the cost of borrowing. I see this as very different than what the US just went through. I want to see what happens to growth.
I have been thinking that the US managed to turn the COVID disruption into a soft landing.
I believe Japan went zero/negative interest after their real estate bubble spectacularly imploded, not before (we are seeing history repeat in China, but much worse). But Japanese lending has always been supported by personal postal savings at low interest rates.
> Historically HK was the financial hub of this region
Japan was once the 2nd largest economy in the world. It had an economy bigger than china and south east asia combined. Historically, Japan was its own financial hub. Not to mention Japan developed before hong kong did. Also, Japan isn't geographically near hong kong.
I had this belief for a bit while living in JP but i eventually realized there are some very key differences culturally that lead to JP’s stagnation. I worked with many college age students and their overwhelming sentiment was a feeling of being crushed by the conservative government and business practices. Entrepreneurship looks very different there.
Japan is basically Fordism on steroids. It has it's pros and it's cons, but it's fundamentally a different social structure and contract to North America or Western Europe (which itself have massive differences as well - someone's experiences in DACH are entirely different from the British Isles)
The only countries I can think of even safely comparing to Japan might be Taiwan, South Korea, and maybe Singapore.
So basically, whoever bought the bonds lost the money, aka, the Japanese government, who loaned itself money at negative interest to buy back its own bonds cancelling out the loss. So there was no growth, and there was stagflation, however, they kept money flowing through the economy via their YCC.
> If you're able to predict with high confidence how this effects the yen/usd rate, then you can make a huge amount of money on fx arbitrage.
Thats not true. It could be the case that the effect of interest rates on exchange rates is obvious to everyone, and therefore it is already priced in.
Interest rates are not an obscure, arcane thing. Lots of people in finance know how they work, and know how they effect various parts of the economy.
Japanese housewives were famous for carry trade on low Japanese interest rates or discrepancies in exchange rates (taking out loans in Japan, lending money outside of Japan). See:
No because USA's central bank is raising rates as well. Only when the policies differ do the currencies move. So Yen seems to have been falling for awhile since their central bank lagged USA. It would probably be a poor choice to dump USD for Yen IMO.
That's old news. They last raised in July '23, 8 months ago, and the most recent FOMC (Fed) Summary of Economic Projections[0] has no one indicating any raise in the foreseeable future. Rate cuts are projected.
It seems a small raise but yeah theoretically raising interest rates should strengthen the currency to USD, because with higher interest rates there is less reason to move the currency to USD. That's just the first order effect though.
Readit News
There is so much context required to interpret this, it really needs to be part of a "Japan Economy" wiki rather than a stand alone article.
But best of luck to Japan. Nobody ever asks for my opinion, but IMO it'd be sensible to let the markets set the interest rate. The evidence that markets are weak at setting interest rates is itself quite flimsy.
I'm not sure what you mean by this. The interest rate policy is linked to the money creation/destruction process, which is ultimately a centralised state function. Banks create/destroy the money, but the pace at which they can do so is governed by interest rates.
I don't understand how the market would be able to set that rate. You'd need multiple entities acting as "central banks", and somehow competing?
What do you have in mind?
The idea that it is proper to adjust the rate of monetary creation based on the market is suspect. It can't create wealth, it can create confusion and is looks suspiciously like a distortion that results in asset owners becoming wealthy at the expense of someone else. Asset prices appear to inflate more in line with the M2 - somewhat faster than the CPI, suggesting that asset owners are getting more benefits from this policy than anyone else. I don't see why they need an extra boost given that they already own productive assets.
Basically; at the moment the system is designed to penalise anyone who tries to preserve wealth in actual cash and as collateral damage prices keep eternally climbing. Neither of those things is helpful and if anything it just makes it harder for people to make rational decisions. It is confusing policy with no theoretical upside that has been drawn to my attention.
It is plausible to me that the group that owns the most Japanese Yen get to set the rate. That group can decide to tread water or start to charging outsiders for use of the capital.
Warning the above is wild speculation from a stranger on the internet.
We tried that and it was completely untenable. During the 1700s and 1800s more and more of society switched from the non-monetary economy to the monetary economy, and more people went out and got jobs for money, and at the same time economic growth became entirely dependent on debt, so that by the late 1800s the Western nations were witnessing wild swings, where the economy would grow 15% one year and then crash into a 10% depression the next year, then grow 14% a year for two years and then have another major depression. The instability was leading to revolution in many countries. In the end, the government had to step in and regulate the speed at which new debt could be issued, so as to smooth out the business cycle. Britain did this first. In the USA the idea of a central bank was much contested during the 1800s but finally it was made official in the early 1900s.
The economy functions the same way in Japan in the same way that computers function the same way in Japan, just with a different input method and currency symbol (円).
In order to understand the Japanese economy today, one really needs to read books about Japan's bubble in the 1980s. The interest rates Japan experiences today are the result of this. In a way, that makes certain aspects their economy very different from that of any other major Western or Asian country.
I would recommend reading "The Bubble Economy" -- which was published in 1992 and thus gives a more closer point of view. The author believed there was an imminent and abrupt price correction, it turn out to be worse and drawn out over decades.
Secondly, "Devil Take the Hindmost: A History of Financial Speculation", published in 2000. The part about Japan's bubble was more concise than the "The Bubble Economy" and has some bits the first missed.
One of the best things about both of these books is they were written before the subsequent dot com bubble and housing bubble in the US.
Japan provides a good lesson on just how drawn out recovering from gross misallocations of capital during bubbles can be, even in very wealthy and developed countries. In Japan's case, it has had a multi-generational impact which continues today.
And how do they do that in aggregate?
But that's what's happening (at least with the Fed, it's difference for ECB): the federal funds rate is actually a market rate! What the Fed does is that it sets two other rates that act as a ceiling (the discount rate) and a floor (the deposit rate) for the Federal funds rate. And then the Fed decides a target rate for the Federal funds market, that fits with their inflation target. If you remove the Fed out of the equation (just for this aspect of their intervention), the the Federal funds rate will move freely but then you have no guarantees that you'd have decent level of inflation…
Are you suggesting there’s no correlation between market set interest rates and central bank rates?
Actually, markets do set most of the interest rates. The central bank only sets one (to be technically correct several) specific interest rate. Usually, this rate sets the price for short-term refinancing operations of private banks with the central banks. Obviously, other interest rates are influenced by this rate indirectly.
I guess the reason for this approach is that banks can react flexibly to high demand for central bank money (aka cash). For example, if people want to hold more cash suddenly, the central bank will swap cash with good assets from commercial banks (aka printing money) so that they can hand it out to them. With a fixed money supply, interest rates would skyrocket in this case. Just because I want to have more cash rather than see that number on my checking account doesn't make a difference economically and so it should also not influence the interest rate.
Thus if you hold the cash, you can attempt a corner in order to obtain a large fraction of the collateral: you hold the cash so that people can't get it and default on their loans. Thus you obtain a large fraction of the collateral, something of enormous value.
What central banks do when you try to do this is that they start printing money, thus this scheme can be stopped. If there's no central bank to do this, the self-interested cash holders could potentially coordinate something like this.
I think the cause of yield curve inversion can be something of this sort, because it can mean that people expect a crash and want cash on hand to buy assets once it has happened, so they don't want to lock their money up for six months, even if the yield is quite high.
Japan has done a lot of innovative things trying to claw itself out of the post bubble hole.
Markets are incapable of strategy and thus can't be trusted with all decisions.
Now that worldwide inflationary pressure is much higher, you're seeing rates rise everywhere. Of course, rates are different from country to country, but directionally, there's nothing novel about what's happening here.
You're saying you can't generalize, but on the contrary, there's a very obvious generalization here.
How would that be relevant...?
> they are basically a clone of the US
I don't necessarily see this frame in the article. If you mean that it cites "american" indicators, it's because those are pretty generic economic indicators shared by pretty much any capitalist economy. Are they the full picture? Certainly not (their infamous public debt, just to mention one, is not mentioned), but mentioning them doesn't imply that they are "basically a clone of the US".
> it really needs to be part of a "Japan Economy" wiki
I mean, each and every country needs its wiki, but life is short.
> IMO it'd be sensible to let the markets set the interest rate
I'm not sure what you mean - leaving banks free to set interest rates? Nobody in the world does this currently. Or just having an independent central bank? The BOJ is more or less as independent from government as the Federal Reserve or the European Central Bank (at least formally).
> How would that be relevant...?
私の懸念は、私が同意しないことと、一次資料のレビューには障壁があることです。グーグル翻訳でも。
Japan is practically the 51st state in the union, geopolitically speaking.
This is an article about Japan raising its interest rate, and people are using it to discuss the abolishment of central banks, or of state-backed currency itself in favor of cryptocurrency.
For those that don't see this: it'd be like if you wandered into a forum where an article was posted about some new product Google released, and the discussion is dominated by a bunch of people talking about how all C++ code should be abolished in favor of Python.
Very bizarre, disorienting experience.
I mean, we do sometimes get that with Rust, so...
Maybe one of these days I should do an easily understandable simulation web toy that people can fiddle with.
A lot of the degradation in "MSM" appears to be due to the severe cost cutting occurring within News Organizations, leading to more sensationalism, less hard reporting, and way less editing and fact checking.
And this is happening in the UK (BBC layoffs, Guardian almost exclusively using freelancers), Canada (CBC layoffs, BCE layoffs), and much of Western Europe as well.
The era of Amanpour reporting in the middle of a warzone are long gone, and non-Western alternatives are government owned and share similar biases (eg. Al Jazeera and anything remotely related to Qatar's mortal archrivals Saudi or UAE, CGTN and China's world view, WION and Indian media's tendency to overexaggerate, etc).
[0] - https://www.american.edu/soc/news/with-foreign-bureaus-slash...
This is really exciting to see the effects of the cost of borrowing. I see this as very different than what the US just went through. I want to see what happens to growth.
I have been thinking that the US managed to turn the COVID disruption into a soft landing.
Maybe I don’t understand what those headers in newspapers mean then.
Japan was once the 2nd largest economy in the world. It had an economy bigger than china and south east asia combined. Historically, Japan was its own financial hub. Not to mention Japan developed before hong kong did. Also, Japan isn't geographically near hong kong.
Deleted Comment
Japan is basically Fordism on steroids. It has it's pros and it's cons, but it's fundamentally a different social structure and contract to North America or Western Europe (which itself have massive differences as well - someone's experiences in DACH are entirely different from the British Isles)
The only countries I can think of even safely comparing to Japan might be Taiwan, South Korea, and maybe Singapore.
We don't really know how this will play out, and people's guesses for how it will play out are to some degree already priced into the current rate.
Thats not true. It could be the case that the effect of interest rates on exchange rates is obvious to everyone, and therefore it is already priced in.
Interest rates are not an obscure, arcane thing. Lots of people in finance know how they work, and know how they effect various parts of the economy.
https://documentwomen.com/mrs-watanabe
If you can identify a flaw in a government's monetary strategy, you can always do some arbitrage to take advantage of it, and people do that.
[0] https://www.federalreserve.gov/monetarypolicy/files/fomcproj...