Negative interest rates

To understand how interest rates can go negative, you need to view interest rates as a control lever. Interest rates are put up to slow the economy when demand outpaces supply, causing an increase in inflation and lowered to counteract a slow-down. What happens when you start to approach a zero rate of interest and the economy is still slowing?

Japan experienced a "lost decade" of relatively stagnant growth in the 90's, triggered by the collapse of a real estate bubble. It took Japan about 15 years to barely turn things around. Lately a lot of references are being made to Japan's multiple attempts to restart growth. Paul Krugman and others have written extensively on the topic.

In the Japanese collapse commercial real estate prices fell by over 80% and the Japanese Central Bank lowered interest rates from over 8% to 0% without significantly improving growth because people were concentrating on paying down debt.

Commercial interest rates don't have to reach zero to be considered negative, they just need to fall below inflation, but in Japan in 2003 the actual rate the banks were lending money to each other really did fall below zero. The interest on retail deposits in the bank was effectively zero or 0.001% - so you would be losing money with fees.

Like Australia and other western countries, the Japanese government tried multiple stimulus packages, but struggled to have an impact. It's difficult to draw comparisons with the Japanese experience because of the entrenched culture of savings that means the bonuses are mostly pocketed. They have at times apparently resorted to vouchers for electronic goods to get people spending.