The Effectiveness of the Negative Interest Rate Policy in Japan: An Early Assessment

This paper examines the effects of the negative interest rate policy (NIRP) introduced by the Bank of Japan in January 2016. It has effectively stimulated private residential investment, and in lowering long-term interest rates, it has likely supported private nonresidential investment. There is also reason to believe that it likely stopped the appreciation of the yen and arrested the downward trend in Japanese stock prices around August 2016. Overall, we find that the NIRP has had expansionary effects, and therefore serves as a legitimate policy tool in alleviating Japan’s zero-interest rate lower bound, notwithstanding some potential negative side effects.