Sunday, January 31, 2016

Materials and Japanese Interest Rates

The headlines tell the story of the three-year decline in oil prices, but it is not just oil that is declining. Metals and a wide range of materials have seen prices erode over the same period. Of course, materials of all kinds serve as input to manufacturing, so if manufacturing is barely holding its own, it makes sense that demand for materials would be soft. Mining is especially affected, with mining stocks down sharply. “There is a global fire sale of copper and coal mines,” writes Matt Egan at CNN.

Japan is the latest country to go to negative interest rates. The central bank lowered rates on excess reserves from 0 to -0.1 percent. The negative interest rate doesn’t mean much (as summarized by Shan Li at Los Angeles Times) but should help encourage consumers to spend sooner when they can, and large businesses and banks to complete payments earlier and faster. Both effects tend to encourage economic activity, though the speed-up may be too small to detect.

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