Negative interest rates used to be an exclusively European affair where only the central banks of Europe, Switzerland, Denmark and Sweden dared to venture. Japan became the first Asian country to introduce negative interest rates with its -0.1% decision on 29 January 2016. In simple terms, negative interest rates mean that instead of receiving interest on your money deposited, you pay an interest to keep your money with the bank. The decision to impose negative interest rates was highly controversial. Bank of Japan Governor, Haruhiko Kuroda, was only able to push through with a tight 5-4 vote and negative interest rates commenced 16 February 2016.

Japan’s Negative Interest Rate Framework

Central banks are the “banks” for banks. This is the first concept you have to understand before I explain Japan’s negative interest rate framework. For example, Sumitomo Mitsui Banking Corporation (SMBC) becomes your bank when you choose to deposit ......