Tuesday, July 04, 2006

Zero Interest Rate Policies To End Next Week in Japan?

According to this news report, the Bank of Japan, have decided "in principle" to end its zero interest rate policy next week, which it has had for more than 5 years.

That is good. Because of the reluctance from both banks and the public to initiate a credit expansion (and because price deflation have left real interest rates above zero), money supply growth have been very low in Japan and no serious private sector imbalances have been created. But now as optimism returns in Japan, it is well advised of them to start normalizing interest rates to pre-empt the creation of the kind of serious imbalances that have been created in America and have started to arise in Europe too.

With companies and households having reduced their debt burden, the Japanese private sector is in far better shape than in Europe and America, something which bodes well for short to medium term growth in Japan.

Rising interest rates could however be very negative for Japanese government finances due to the high level of government debt. That is why it is imperative for the Japanese government to accelerate the cuts in public spending in general and the spending on the oversized government "investments" in particular.


Anonymous CreditInstructor said...

Good for them. I mean it was really important for Japan to change their interest policy.

6:15 AM  

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