This isn't about government bond rates. It's the rate for overnight deposits at the central bank. Here's an article that talks about the alternative to this: holding cash. http://www.economist.com/news/finance-and-economics/21679231...

Like most countries, Japan's government runs a deficit and depends on selling bonds for funding.

How does that work with a negative rate? Somewhat equivalently, how does that work with any rate whatsoever?

it means they can sell the bonds for less (i.e. pay less interest) because one source of competition, depositing the money rather than buying the bond, is less attractive for the captial. As with all credit - that's a great dynamic if you're using the funds for capital infrastructure to strengthen your overall situation, but kinda questionable if you're using it for living expenses.

They would presumably just invest it into other countries' government bonds? With the low interest rates, that has already been going on: borrow Japan money at low interest and buy a high interest government bond.

This isn't about the rate on government bonds, it's the overnight rate on savings deposits.

Government is charging commercial banks negative interest rates.