a systemic financial crisis- Japan
The Japanese central bank may be forced to hike rates
Japan’s enormous government debt and vulnerable banking sector mean that doing so could trigger a systemic financial crisis.
Hiking interest rates in an environment of near-zero interest rates, when investors expect rates to remain ultra-low forever, will be challenging
But if inflation remains persistently high, policymakers will be forced to act. After all, markets will inevitably push up rates across the yield curve.
While some pundits cite Japan as evidence that enormous government debts do not matter, the fact is that they do.
Like other highly indebted countries such as Greece and Italy, Japan has experienced extremely low average growth over the past three decades.
Kenneth Rogoff Project Syndicate 5 October 2023
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