Global Era of Negative Interest Rates Ends as Japan Goes to Zero
TOKYO—The world’s nearly 12-year experiment with negative interest rates is over now that the last holdout, the Bank of Japan, has moved its key policy rate back to at least zero. Of the many unusual measures central bankers took over the past decade and a half, negative rates were among the most controversial, with uncertain benefits and potential risks. The experiment’s bottom line: Negative rates weren’t enough by themselves to pull economies out of a funk or lift inflation toward central banks’ 2% targets.
It took the Covid-19 pandemic and war in Ukraine to accomplish that. Yet if negative rates weren’t a cure-all, they seemed to help at least a little. In Japan’s case, negative rates, after a delay, contributed to driving the yen down and import prices up, fueling the return of inflation.
Despite some adverse effects, banking systems didn’t totter as feared. So while central bankers are retiring negative rates for now, they will almost certainly keep them in the toolbox in case a similar emergency recurs—perhaps as a threat that never has to be used. If market conditions demand it, “we always have that option of going back to minus," said Yutaka Harada, a former Bank of Japan policy board member who backed negative rates.
Once no more than a theoretical curiosity, negative rates became thinkable after the global financial crisis of 2008 put many of the world’s advanced economies in a deep freeze sometimes called secular stagnation. Even after pushing interest rates down to zero, central banks struggled to generate what they viewed as a healthy level of inflation. Regular depositors can preserve their cash by storing it under a mattress.
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