What the End of Japan’s Negative Interest Rates Means

Japan’s central bank raised interest rates last week for the first time in seventeen years, ending the world’s only remaining negative interest rate regime. The Bank of Japan also abandoned its yield curve control policy which has been in place since 2016, which saw it buying Japanese government bonds to keep longer term interest rates from rising. It has however maintained bond buying at the same pace for now.

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[KingUnKaged]

Nice to see Patrick going into work for a change instead of wasting all his time at home, working on his mixtape.

[サクラ-dc]

Job hunter in Japan here. Looking at the starting salaries can give you a good picture of Japan's slow growth. Most wages for large corporations today sit around 2, 400, 000~2, 700, 000 JPY a year without taxes deducted. A lot of jobs IN TOKYO only pay around 2, 200, 000 JPY or 14, 535 USD a year without tax deducted. Even AFTER you adjust for PPP, that's only around 22, 000~27, 000 USD a year for top Japanese companies. Meanwhile, the shit you have to deal with to even get a job makes Japanese companies genuinely one of the least attractive employers out there. No wonder consumption isn't rising. There is NO WAY consumption will rise UNLESS more money is moved away from the hoarding old ruling class and put into salary increases and better jobs for the spending younger generation.

[hotwind]

I worked with engineers from Japan on international projects across SEAsia and Europe. I learned that most international corporations in Japan have a 2 sided system: a domestic side and an international side. The former deals with projects in Japan (and their old, somewhat archaic way of doing business) while the latter reaches overseas to get involved in projects (which may or may not be partially funded by investment from Japan). Fifteen years ago, it was unthinkable for an employee in the international side to settle elsewhere outside of Japan. They were expected to leave their family in Japan for 6-8 months (or more) each year in order to work in the overseas branch office of their corporation. Nowadays, 1/5 to 1/3 of these foreign department employees choose to settle in the country of their assignment. According to them, the pay is better, COL is less, and they find better ways to grow their wealth via more lucrative investment options.

[LesWhinen]

I lived in Japan and worked as a Japanese linguist in the Navy. I'm not native to Japan, but think I understand their culture and society pretty well for a gaijin. Something I noticed while living abroad in Europe and Japan, was that the perception Americans get from news, and particularly economic news, paints a picture of a country's economy that doesn't capture the actual effect on "normal" people. For instance, when I lived in Italy, I often had to go to Spain and Greece for work. This was back when the PIGS acronym was gaining traction, and these Med countries were called economic basket cases. From my experience, this type of news was about factors that affected the investor class, and government officials.

The reason is that the "normal" people in these countries were largely shielded from the effects of what usually turned out to be their government's fecklessness, to the degree their economies were shielded from foreign intervention. What I mean is that a country like Italy is mostly sustained by products grown and manufactured domestically. They eat food grown in Italy. They drive cars made in Italy. They wear clothes made in Italy. What this means is that the domestic economy is mostly a closed loop. Back then, Italy didn't even allow foreigners to own real estate in Italy. Greece worked similarly as far as being a closed loop economy, but not as much so in manufacturing. They also allowed foreign real estate buying, and as a result, people from richer countries in Europe bought out a lot of land there, especially on the islands. This brought up the price of real estate, and made it harder for native Greeks to afford to buy a house. Outside of this, the Greeks, like the Italians, consumed mostly domestic products on a day to day basis.

I bring up these PIGS countries, because the perception back then was that they the foreign perception was that they were economic basket cases, but the lived reality on the ground showed that the people ended up being affected only insofar as the country relied on foreign products or allowed foreign investment.

In my experience, Japan is like a turbocharged version of this. Even though Japan is a huge exporter, and as a result a pretty rich country, their domestic production is such that they don't rely on imports to sustain the population, and people largely consume food and goods made in Japan, though food imports are more common than in Italy for instance, because the population density of Japan is very high. In Italy and Greece, people largely eat traditional food and are less likely to eat food requiring produce imported from elsewhere. In Japan this is broadly true as well, and if they were to hypothetically go full isolationist, it would mostly mean beef would be a luxury, and fish would be the staple protein, which is already mostly the case. Japan makes cars, industrial machinery, consumer electronics, basically everything to sustain their economy, and their long history of complete isolationism feeds into their strong desire to be independent of foreign products. Japan is a supercharged version of the closed loop Mediterranean economies, being a literal island.

The TLDR of this rambling is that when countries are perceived as being in large economic trouble, this doesn't necessarily affect the local population as much as it would in a country that subsists a lot on imports, like the US. The people mostly affected by these problems are investors, both foreign and domestic, and government policy makers. If the Yen loses value in relation to the dollar, for instance, it doesn't affect a "normal" Japanese person that much, because everything he consumes was valued in Yen in the first place. It does affect capital investments in Japanese companies from overseas though. The elephant in the room is oil though, as all of the countries I talked about are big importers. Again, the effect of a "normal" person is often overstated here too, because their society is already setup where personal driving is far less common than in the US. Likewise, nuclear power is much more common in these countries. Their habits have "baked in" a general high price of energy.

I'm obviously not criticizing Patrick's analysis, as he framed the discussion in the way it is often framed in foreign media - how it affects foreign investment or geopolitics. I just wanted to expand on it with my personal experience that I thought was relevant to the discussion. Great job, as always, Patrick!

[shot]

Keeping up to date with a foreign economy by a professor while pooping, what a time to be alive

[alex]

Most people: well curated bookshelf and art
Patrick: Abandoned trading floor 0:01 and sterile surgical theater observation deck 4:06

[randomchannel-pxho]

CNBC and Bloomberg may report on it quicker, but it's worth waiting for an informed perspective that respects your intellect from Patrick Boyle, whereas the big news stations will invite random investment bankers to start giving their policy prescriptions for a country and other nonsense like that

[graham]

The real issues are Japan's aging population and the near zero productivity growth (stagnant for 20 years) for a long time. The combination of these is a real killer in terms of being able to finance their debt (with a positive interest rate) and support their increasing ratio of elderly population.

[fahmimansor]

Dear Professor Boyle, please do a video on quantitative and qualitative easing. Thanks.

[SH-nphz]

Excellent video. Well paced and informative

[BinarySplit]

Is that an open plan office, with a big marquee screen that never turns off, always sitting in the corner of your eye, constantly scrolling? This has to be Patrick's most horrifying video yet!

[most-average-athelete]

The content quality per 20 minute segment in this channel is likely higher than a week worth of "opinion" pieces on CNBC :x

[djack]

🦾🏃 I liked when Patrick was working out- in his suit 😂

[christiane.c.]

Love your content, Patrick. Thank you

[ohigetjokes]

Can you make a video about this slow depression we’re in in North America where companies are doing amazing but the cost of living is absolutely horrific?

[ShannonWare]

At present I work for a Japanese owned firm in Europe. Last week headquarters announced they are winding down our business unit. I had thought that positive economic news would make the owners less inclined to sell. Well, they weren't inclined to sell, they decided to shut us down. (Check the Register for the news.) Based on Patrick's analysis here, it makes perfect sense that our soon-to-be former owners are looking to repatriate capital .

[Lorendrawn]

I'll be watching this for the next couple years. Fascinating what Japan's trying to do

[SusieAspen]

Nice to see you responding to a question I asked in an email a while back!!!

[moustafamohsen]

Why do people in finance always put two monitors above each other?

[CommanderRiker]

I don't even know why economists talk about nominal rates, the real rates in Japan are still deeply negative. Inflation is well above 2%. I was in Japan just 4 months and in 4 months the washing machine/dryer price in my hotel went from 200 Yen to 400 Yen (They came and changed the price twice in 4 months!). Also tracked my snack prices as it was convenient, about 3% increase in 4 months. That's huge inflation. Also some items I frequently bought (Soy milk for example went from 1000mL to 900mL with no price change, however that's 10% right there). I think this really just points to why people are rapidly losing trust of our academics and institutions.