What is the reason for the low interest rates in
Japan?
Japan is facing a deflationary situation and the economy is almost stagnant. There is a huge pile up of capital (savings deposits) in the country and absolutely no demand, because of global slowdown. Japanese companies are cutting their investments leading to a near zero interest rates. Another reason is pressure corning through the foreign exchanges. Twenty years of current account surpluses have led to a huge buildup of claims - mainly dollars - on foreigners. Because of ongoing fluctuations in the yen/dollar exchange rate, Japanese financial institutions will only willingly hold these dollar claims if the nominal yield on them is substantially higher than on yen assets. In the 1990s to 2002 as US interest rates have come down, portfolio equilibrium has been sustained only when nominal interest rates on yen assets have been forced toward zero.
Japan is facing a deflationary situation and the economy is almost stagnant. There is a huge pile up of capital (savings deposits) in the country and absolutely no demand, because of global slowdown. Japanese companies are cutting their investments leading to a near zero interest rates. Another reason is pressure corning through the foreign exchanges. Twenty years of current account surpluses have led to a huge buildup of claims - mainly dollars - on foreigners. Because of ongoing fluctuations in the yen/dollar exchange rate, Japanese financial institutions will only willingly hold these dollar claims if the nominal yield on them is substantially higher than on yen assets. In the 1990s to 2002 as US interest rates have come down, portfolio equilibrium has been sustained only when nominal interest rates on yen assets have been forced toward zero.
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