The Wall Street Journal reports the Bank of Japan surprised everyone by dropping their ZERO % interest rate to MINUS 0.1%. Haruhiko Kuroda, the governor of the BOJ stated at the time the move will benefit the economy by lowering interest rates on mortgages and other loans. Depositors were expected to spend money.
The people of Japan are indeed spending their money. They bought every available home safe available so they can hoard their cash without paying banks for the privilege of deposits. The most popular model retails for $700. It is out of stock for a month.
Here are two reasons for the public rebellion: first of all, the new interest rate yields a penny in annual interest on a deposit of $1000. A single weekend ATM transaction fee is one dollar. Secondly, the negative interest rate makes the yield on 10-year government bonds minus 0.05% in exchange for their ten-year commitment, bond investors will have less money at term than they put in.
Money market funds and life insurance companies have halted sales of some of their products. 64-year-old Kazuo Matsumoto told a reporter he plans to turn some of his cash into gold.
There was no warning. The Bank of Japan made no announcement of the plan to change the interest rate, it just happened January 29th of this year. The world financial community was as surprised as the people of Japan.
What is the ultimate significance of these moves? The elimination of cash, of course. Willem Buiter of Citibank, formerly with the Bank of England told the BBC this is a very real future possibility.
People buy lottery tickets in the belief as long as someone wins, they can win. The same philosophy applies to the interest rate ambush. If one national bank can get away with it, any national bank can. Keep in mind, BOJ isn't the first; Denmark, Sweden, Switzerland, and Spain led the way. Given how the dominoes are falling, there is every reason to believe the US Federal Reserve will follow suit. There is every reason to prepare now.
Gold is proving to be the recourse to preserving earnings. As more and more people turn to gold, the demand will raise the price. Open your gold account today.
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