Sunday, September 25, 2022

Japan’s Zero Interest Rate Policy: Galloping Inflation or National Bankruptcy?

Status: 20.06.2022 2:59 PM

Japan is continuing its zero interest rate policy. This is especially favorable for a state with heavy debt. The director of the German Institute for Japanese Studies warns of a possible “scary scenario”.

By Katherine Erdman, ARD Studio Tokyo

If one speaks of Japan and its finances, the term loose monetary policy appears at the latest in the second sentence. “Central banks provide money for the economy. Now you usually imagine that they would fire up the printing press and print more banknotes. But monetary policy actually works in a way that central banks so-called central bank money. for commercial banks,” explains Franz Waldenburger, director of the Institute for Japanese Studies in Tokyo. “And commercial banks can then use it to lend to the economy.”

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Borrowed money deposited in the central bank

But contrary to expectation, the economy has not been stimulated as such, and there has been no investment. Instead, the borrowed money was parked back in the central bank. Japan’s long-standing zero interest rate policy is particularly beneficial to the heavily indebted state, as loans are cheap.

They are negative for savers and the economy. “Low interest rates mean that less productive companies can exist because of lower interest rates,” Waldenburger says. This hinders more productive companies. “Then they don’t find people to keep growing. And given the demographic growth, that’s really something Japan can’t afford.”

Wages are almost the same for 20 years

The director of the German Institute for Japanese Studies says that for a long time everything went smoothly. But that may change now. Because here too the prices of food items have increased a lot. And consumers are very allergic to it, because wages have remained the same for almost 20 years. Less than a month before the election to the upper house, acceptance of government policies fell through.

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“Scary scenario – that inflation gets out of hand”

And the yen is weakening — not a good sign, central bank governor Haruhiko Kuroda said at the end of the week. Currency collapse makes it difficult to plan for the future, is undesirable and is bad for the economy.

Waldenberger sees it that way and is quite concerned. “I don’t expect it to be a clear decision: runaway inflation or national bankruptcy.” It’s the frightening scenario that some see as “interest rates will eventually rise or, if the central bank keeps trying to keep rates low, inflation gets out of hand.”

Leading the trend: Japan and its loose monetary policy

Katherine Erdman, ARD Tokyo, 20.6.2022 2:12 PM

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