Japanese Starting to Hoard Cash in Response to Negative Interest Rates

In response to the Bank of Japan’s introduction of negative interest rates, the Wall Street Journal reports that sales of personal safes to store hoarded cash are soaring. It’s an entirely predictable reaction to the introduction of negative interest rates. If you’re going to have to pay to store your money in a bank, why not just store it yourself?

Anyone could have told the BOJ that this would be the result. If you give someone the choice between $100 today and less money next week, everyone will always take the $100 today. Inflation expectations or the existence of inflation or deflation have nothing to do with it. In an inflationary environment in which prices are rising, people will take $100 today over less money in the future because the $100 will buy more today than less money will in the future. In a deflationary environment in which prices are falling, people will take $100 today over less money in the future because they can hold onto the $100 and buy more goods in the future than they can today, and more goods than they would be able to with less money in the future. And in an environment in which there is neither inflation nor deflation people will take $100 today over less money in the future because the $100 will buy more goods period.

The effect of negative interest rates is to make it more expensive to hold money in a bank. Interest rates are a price just like any other. The higher the interest rate, the more people will want to deposit money into bank accounts; the lower the interest rate, the less people will want to deposit money into bank accounts. If you lower interest rates, people will pull money out of their accounts. If you drive interest rates into negative territory, thereby imposing a cost onto depositors, they will decide to close their accounts and hold their cash themselves. This is basic economics. If you raise the price of something, fewer people will buy it; if you lower the price, more people will buy it. Negative interest rates raise the cost of holding a bank account, therefore you would expect negative interest rates to result in fewer people holding bank accounts. The lower the interest rate drops below zero, the more people will close their accounts and hold cash.

The Bank of Japan seems to have taken completely off guard by the negative reaction to negative interest rates. But why? After all, there are a number of folk sayings which convey such common sense notions, and which one would imagine have similar corollaries in Japan.

A bird in the hand is worth two in the bush.

People often prefer a sure thing to the promise of something greater. They would rather have $1 today rather than the uncertain promise of $2 in the future. And they would definitely rather have two yen today than one yen in the future.

Possession is nine-tenths of the law.


If you can’t hold it, you don’t own it.

People want to maintain ownership and control of their money. Negative interest rates put banks in the driver’s seat and work hand in hand with the war on cash, giving banks total control over people’s deposits. If you want to control your money anymore, you almost have to hold it yourself. Negative interest rates and the war on cash work together to force people’s money into the banking system and keep them from withdrawing it, putting them at the mercy of banks and governments.

Hopefully this reaction on the part of the Japanese population will give the Bank of Japan and other central banks considering negative interest rates pause. A surge of depositors withdrawing money from banks and holding it in cash could take down the banking system, built as it is as a massive inverted pyramid on top of a very small deposit base. There’s a reason no one had ever tried to introduce negative interest rates before, because it will not and cannot work. It’s just grasping at straws, one more crazy monetary policy action that central banks are undertaking because nothing else is working and the central bankers are unwilling to admit that they are unable to fix the economies they broke. Let’s just hope that central bankers learn their lesson soon before they try to push interest rates even lower and cause severe economic damage.

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