Japan may be the Land of the Rising Sun… but in terms of monetary policy, it’s the land of falling interest rates.

Negative interest rates, to be precise.

As damning economic indictments go, it doesn’t get much more doom and gloom than what the Bank of Japan did recently.

It lowered interest rates on additional deposits made by banks to negative 0.1%.

In doing so, it joined the European Central Bank (ECB) and the central banks in Switzerland, Sweden, and Denmark in pushing their rates below zero.

The question is: Why? And what does it mean for the rest of the world and investors?

Japan Hits the Nuclear Button

Japan’s version of quantitative easing (QE) isn’t working.

The Bank of Japan now owns one-third of all Japanese government bonds. And this is after buying an amount of securities equal to one-fifth of its annual economic output.

Yet its economy is barely growing.

So in dragging interest rates below zero, it’s another attempt to shock the economy into life.

It probably won’t work.

The economic problems in Japan are more deep-rooted and systemic than any monetary policy can cure.

But that doesn’t mean the bankers’ decision doesn’t have wider implications.

In fact, the effects of this move are like a tsunami raging through the financial markets.

Over to You, China

Naturally, the Japanese yen suffered the main impact. It tanked.

The yen dropped from 118 to the U.S. dollar to 121 quicker than you can say “currency war.”

This pushed the dollar to a 13-year high versus a basket of 16 currencies. That’s not good news for many U.S. companies, despite the stock market surge after the announcement.

Since 2012, Japan has devalued the yen by 50% since 2012 – from around 80 yen to the dollar to current levels.

The reaction from the U.S. markets and government officials? A collective shrug.

Contrast this laissez-faire attitude with China’s moves to devalue the yuan. It couldn’t be more different!