Japan’s Negative-Rate Experiment is Floundering

by Elanor Warnock and Mayumi Negishi
Market Watch

TOKYO — Japan’s two-month experiment with negative interest rates is producing some unexpected results.

Trading has withered in Japan’s money markets, where big banks and others usually park their excess cash hoping to receive some interest — despite predictions from the Bank of Japan that its latest easing of monetary policy would spark more activity. And there has been a rush in demand for Japanese government bonds even as many yields went below zero.

The unusual source: foreign investors, who in the past have largely stayed out of the low-yield market but have recently jumped in because of rising returns on Japanese-bond trades using cheaply-funded yen.

Such side effects have come as Japan’s currency, the yen, has also been on an unexpected tear, trading at around 18-month highs against the U.S. dollar in recent weeks.

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