Japan Implements Negative Interest Rates to Boost Economy

March 17, 2016

Unlocking Word Meanings

Read the following words/expressions found in today’s article. 

1. impose ɪmˈpoʊz / (v.) – to set a law or rule
Example: The government imposed a cigarette tax to discourage smoking.

2. charge / tʃɑrdʒ / (v.) – to ask for payment.
Example:  Some establishments charge their customers for parking.

3. withdraw / wɪðˈdrɔ / (v.) – to take away money from one’s bank account
Example: He withdrew a large sum of money for his trip to Australia.

4. park / pɑrk / (v.) – to leave something for a long time
Example: He parked his money in the bank because he could not decide how to use it.

5. conceal / kənˈsil / (v.) – to keep something hidden
Example: The actor used a fake name to keep his identity concealed


Read the text below.
The Bank of Japan (BOJ) has recently imposed a Negative Interest Rate Policy (NIRP) in hopes of boosting the country’s economic growth.

Typically, a bank pays interest to depositors to encourage them to keep their money banked. When the interest rate, or the amount of interest paid over a period of time, falls below zero, a bank charges depositors to keep their money in the bank, thus encouraging them to withdraw and spend.

The BOJ set the interest rate at -0.01% for accounts owned by banks. This is to urge banks to loan their money to individuals or businesses instead of keeping their funds parked at the BOJ. The BOJ expects that this would lead to more spending and investing among citizens, consequently stimulating economic growth.

The policy aims to increase the inflation rate to 2%, a goal set by Prime Minister Shinzo Abe and BOJ Governor Haruhiko Kuroda to counter the long-standing deflation that Japan has been experiencing for two decades now. The BOJ also said that if necessary, it would cut the interest even lower in order to meet the target.

As of now, the policy covers only client banks of the BOJ. It is believed that the policy will not be imposed upon individual depositors because it might drive people to avoid banks and keep their money concealed to avoid being charged by the bank when they deposit their money.

The implementation of the NIRP in Japan makes the BOJ the fifth central bank to adapt the unconventional policy. The first to impose negative interest rates was the European Central Bank in June 2014. It was followed by the central banks of Denmark and Switzerland at the start of 2015, and by Sweden later the same year

Viewpoint Discussion

Enjoy a discussion with your tutor.  

Discussion A

·         Do you think that people would avoid banking if commercial banks imposed a negative interest rate on clients? Why or why not?
·         What would you do if a bank asked you to pay so that you can keep your money deposited?

Discussion B

·         Aside from depositing money in a bank, what else can people do to make good use of their money?
·         Give some ways on how the government can encourage people to spend their money.

March 17, 2016