Question

The following figure shows that Japan’s short-term interest rate have had periods during which they are near or equal to zero. Is the fact that the yen interest rates shown never drop below zero a coincidence, or can you think some reason why interest rates might be bounded below by zero?

Interest Rates on Dollar and Yen Desposits, 1978 - 2016 23 19 14 Dollar rate Luk Yen rate ته 1978 1980 1982 1984 1986 1988 19

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Answer #1

Interest rates never dropped below zero as Japan never experienced deflation over the years and moreover consumption and spending was fairly observed which kept them at zero bounded levels. Also fact that Japanese mindset believed in savings propelled the central bank not to adopt negative interest rate regime.

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