Money Goes Around

Bank of Japan started applying of negative rate to deposit of commercial banks. By imposing penalty on saving money, the policy aims to increase money flow in the market. So, does individual money willingly go out of bank accounts? Certainly, no. With pessimistic perspectives for the future of household economy, consumers are still saving their money. Money is just looking for alternative place to stay.

Mainichi Shimbun quoted a comment of an aged woman, consulting with the banker at the counter of Shinsei Bank in Tokyo on the first day of negative rate. Having realized that the interest for her deposit would be reduced, she decided to transfer her money from time-fixed deposit of the bank to trust funding operated with exchange of internal stocks. Although she did not like to be involved in complicated money market, it was inevitable for her to save money for her retired life in the future.

Monetary authority of Japanese government expects lesser amount of deposit in the banks. “In Japan, money is unevenly distributed to the savings,” told Minister of Finance, Taro Aso, in his press conference on Tuesday. However, there are a few beneficial places for individual money to go in a volatile economy these months. The stock price of a fire-proof strongbox maker has been rising after BoJ announcement of introducing negative rate, expecting higher demand for safes.

Short-term monetary market showed strange move on Tuesday. The interest of overnight transaction between financial institutions temporary marked 0%. One of the typical renders in the market was life insurance company. Because interest rate of the borrowers, or commercial banks, were too low to rend money. Insurance company is considering raising the price of life insurance and cut the return off.

Japan Post Bank, with its huge ¥205 trillion operating asset, depends 40% of its investment on national bonds. Decline of interest of national bond is damaging its business. The bank is looking for alternative option for its investment, including such high-risk financial instruments as real estate fund or unlisted stock fund. It should be possible for the bank to raise service charge for using automated teller machine.

Impact on local banks would be more serious. They do not have much income resource in overseas. With few chance to have profitable borrowers in local society, local banks have been dependent on national bond. Bankruptcy is not an unpredictable option for small local bank, which cannot find alternative business options, under unusually low-rate monetary policy.