Are Negative Rates Helping or Hurting Japan?

Federal Reserve Bank of Dallas President Robert Kaplan doesn’t know yet whether Japan’s negative interest rate policy is benefitting the country or not, saying the “jury is out” still.

He stopped short of saying that negative rates could actually hurt Japan, but did admit that monetary policy isn’t powerful enough on its own to fix the country’s key problems.

From Bloomberg:

“Negative rates might buy them time. They might on margin help ease what they are trying to do, but they are not a substitute for structural reforms,” Kaplan said in an interview on Bloomberg Television in Jackson Hole, Wyoming, ahead of an annual policy symposium beginning Friday. “Japanese officials are painfully aware those structural reforms are not easy.”

Those structural problems include a lack of inflation, demographic issues linked to an aging population, a low birthrate, and a GDP that is well below its levels 20 years ago.

Kaplan said the strengthening of the yen after the introduction of negative rates — when many people expected the currency to weaken — underscored that managing a currency is a “very difficult thing.”

“I think the lesson they may have learned is negative rates have side effects. They may not achieve the intended objective, and they need a broader range of policy tools than just monetary policy,” Kaplan said.


The iShares MSCI Japan ETF (NYSE:EWJ) was unchanged in premarket trading Friday at $12.31 per share. The largest U.S.-listed ETF by assets targeting Japanese equities has risen 1.6% year-to-date.

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