Can someone please tell me how negative interset rates work for Japan?

[tm689]

In case of Japan, it is my understanding that most government bonds are bought by the Bank of Japan (BoJ). And that there are not many other institutions/investors who buy these.

Some institutions in Japan are required to only hold certain types of assets. Insurance companies fit into this category. They buy the govt bonds because it is one of the few choices they have to invest their funds.

 

[RGLD]

Let me understand this: The Japanese Gov needs money, so the Japanese Gov (BoJ) prints some money and the Japanese Gov (BoJ) bought the bonds and pays itself a negative interest rate for the money it lends itself... My head is spinning.

According to the article, the government ask for money, banks buy it up, and the BOJ buys it off the banks with printed money... The banks sell it at a smaller profit.... I guess if so many institutions are forced to hold on to them, they'd want deflation.