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Japan’s accommodative monetary policy: runaway inflation or national bankruptcy?

Status: 20.06.2022 14:59

Japan continues to pursue its zero interest rate policy. This is particularly favorable for the heavily indebted state. The director of the German Institute for Japanese Studies warns of a possible “horror scenario”.

By Kathrin Erdmann, ARD Studio Tokyo

When it comes to Japan and its finances, the term accommodative monetary policy appears in the second sentence at the latest. “Central banks make money available to the economy. Now you normally imagine that they would just turn on the printing press and print more banknotes. But monetary policy actually works in such a way that the central bank makes so-called central bank money available. to commercial banks “, explains Franz Waldenberger, Director of the Institute for Japanese Studies in Tokyo. “And commercial banks can then use it to transfer loans to the economy.”

Borrowed money parked at the central bank

But contrary to what was hoped, the economy was not stimulated in this way and there was no investment. Instead, the borrowed money was parked at the central bank. Japan’s long-standing zero-rate policy is particularly beneficial to the heavily indebted state, because the loans are cheap.

They are bad for savers and the economy. “Low interest rates have meant that less productive companies can continue to exist due to low interest rates,” says Waldenberger. This hinders the most productive companies. “Then they don’t make people keep growing. And given the demographic development, it’s actually something Japan can’t afford.”

Wages have remained almost the same for 20 years

For a long time everything went smoothly, says the director of the German Institute for Japanese Studies. But that may change now. Because here, too, food prices have risen dramatically. And consumers are very allergic to this, because wages have remained almost the same for 20 years. Approval for government policies collapsed less than a month before the upper house elections.

“Horror Scenario: 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. The collapse of the currency makes it difficult to plan for the future, is undesirable and harmful to the economy.

Waldenberger sees it the same way and is rather worried. “I don’t hope there has to be this brazen decision: runaway inflation or national bankruptcy.” This is the horror scenario some people see, “that interest rates will eventually rise or, if the central bank continues to try to keep rates low, inflation gets out of hand.”

Going against the trend: Japan and its accommodative monetary policy

Kathrin Erdmann, ARD Tokyo, 20.6.2022 14:12

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