June 6, 2023
Posted on June 06, 2023
Planning and Guidance, Tailored To Your Life and Goals
Posted on February 02, 2016
<![CDATA[How low can you go? The Bank of Japan (BOJ) dove into the negative interest rate rabbit hole last week when it dropped its benchmark interest rate to minus 0.1 percent. If you’ve been following Japan’s story, then you know the country has been struggling with deflation for almost two decades. The BOJ’s goal is to push inflation up to 2 percent. MarketWatch explained the idea behind negative interest rates:
“Central banks use their deposit to influence how banks handle their reserves. In the case of negative rates, central banks want to dissuade lenders from parking cash with them. The hope is that they will use that money to lend to individuals and businesses which, in turn, will spend the money and boost the economy and contribute to inflation.”If the idea of negative interest rates sounds familiar, it’s probably because Europe has been delving into negative interest rate territory for a while. Several European central banks have adopted negative interest rate strategies, and about one-third of the bonds issued by governments in the eurozone offered negative yields at the end of 2015. It’s an unusual state of affairs – offering investors bonds that pay less than nothing. If investors hold to maturity, they get back less than their investment amount. While negative rates may not be pleasing to bond buyers, U.S. stock markets were thrilled by the BOJ’s surprise rate cut. Major indices rose by about 2 percent on Friday. Market performance was also boosted by a bad-news-is-good-news interpretation of weak fourth quarter U.S. gross domestic product (GDP) growth estimates. According to Reuters, slower growth in the U.S. economy raised investors’ hopes the Federal Reserve would hold back on future rate hikes.