What the End of Japan’s Negative Interest Rates Means

"The Bank of Japan has said that they expect higher incomes to lead to a virtuous spiral with domestic demand fueling inflation. They say that their long-held goal of stable 2% inflation is finally “within sight”."

"Servicing Japan’s massive government debt is already a struggle which will become more difficult once negative interest rates and yield-curve control have been abandoned."

"The Economist points out that while price inflation is still above 2%, it is already falling. They argue that for the trend to continue, Japan needs reforms that raise productivity and boost the potential growth rate, otherwise deflation could return."

"It referred to how by 2025, all six and a half million of Japan’s baby boom generation would be 75 or older. Japan in 2025 would become a super-aged society the likes of which has not been seen before."

"Based on current projections, by 2050 there will be almost the same number of workers in Japan as retirees."

"In a country with high debt the high number of elderly people can be expected to put extreme strain on the economy, welfare programs and retirement plans"

"My friend Manoj at Talking Heads Macro argues that the Bank of Japan’s optimism that wage negotiations would deliver stronger nominal (and real) wage growth leading to consumption growth might be wrong. He argues that Japan’s real wages have fallen over the last two years and that consumption growth will only come after households have recouped the purchasing power they lost due to inflation. He says that households will need several quarters of wages outstripping prices before the wage level catches up with the price level. Only then will they feel that their wages can be used for broad-based consumption… that time is not now."

"For the time being, a sharp increase in Japanese interest rates seems unlikely."

"If the Fed started cutting rates, narrowing that gap, the yen could start to rise as Japanese rates become relatively more attractive. This would make imports cheaper, putting downward pressure on prices."