We have learned little about the likely effect that a somewhat higher funds rate would have had on the speculative element of prices. Of course, it is important to keep an open mind about the relationship of short-term interest rates and speculative activity.
The policy framework adopted by the Bank of Japan follows the example of the frameworks adopted by European central banks but includes some modifications reflecting the specifics of Japan’s financial system. In designing a policy framework to overcome the zero lower bound, a key challenge is that a negative interest rate potentially has adverse effects on the profitability of the banking sector.