Has Japan gotten by without interest? Did Japanese collect interest in savings? It’s confusing.
In: Economics
Japan has been experiencing a long period of very low interest rates and low inflation, which has posed challenges for its economy. The big issue with Japan and interest rates is that the low-interest-rate environment can create difficulties for economic growth, monetary policy effectiveness, and financial stability.
In Japan, the central bank has implemented various monetary policies over the years to combat deflation and stimulate economic growth. One of the key tools used by central banks around the world is adjusting interest rates. However, in Japan’s case, even with near-zero or negative interest rates, the inflation rate has remained stubbornly low.
As for your question about whether Japan has “gotten by without interest,” it’s important to note that low interest rates do impact various aspects of the economy. For savers, low interest rates mean they earn less on their savings, which can affect consumption and investment decisions. At the same time, borrowers may benefit from low borrowing costs.
Japanese individuals have traditionally been known for their high savings rates, but the low interest rates have meant that their savings may not grow as much as they used to. This can have implications for the overall economy and people’s financial planning.
In summary, Japan’s experience with low interest rates is complex and has various implications for different aspects of the economy. While low interest rates can help stimulate economic activity, they also come with their own set of challenges and can have diverse impacts on different groups within the society.
The story really goes back to the late 80s and 90s where Japan (some claim artificially) kept the Yen weak and basically was the China of today – taking over manufacturing etc. This led to super high asset valuations in Japanese property and Japanese companies leveraging those domestic prices to take on debt to acquire other assets (Rockefeller Center, Columbia Pictures etc). By the mid 1990s this came crashing down. Due to pressure from Reagan, the Japanese yen was allowed to appreciate and there was a property slowdown.
This left the Japanese central bank with a few bad options. The economy was slowing down, deflation was looming but their banks/companies were holding a lot of debt. So to try to stimulate consumer spending and also to keep the banks alive interest rates were lowered. This kept banks alive (low interest rates) but the banks essentially ran out of liquidity because they kept holding on to really bad loans in order not to force closure of businesses should they foreclose these loans. This is in contrast to the US approach of 2008 where the Fed basically allowed banks to go under and forced restructuring in return for immediate bailout support (to be paid back later). The US approach works fast but is very painful. The Japanese approach is sort of a death of a thousand cuts – hardly any recovery or growth for a very long time in the broader economy but companies limped along making fewer investments (while paying back loans slowly).
All of this happened by the early 2000s. Since then the Japanese Central Banks have essentially run a negative real interest rate policy (except for a short period in the 2008 crisis). Meaning the nominal interest rates were pretty much at zero while the economy had very low inflation but also nearly zero growth. Incomes naturally stagnated as well although employment remained OKish.
So for the first time in almost 2 decades, the Japanese Central Bank has now decided to raise interest rates. This is a big deal but also a bit surprising since inflation hasn’t actually kicked in and GDP growth isn’t exactly high either.
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