What about Japan?

YiLi Chien, Harold Cole and Hanno Lustig

No 2023-028, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Over the last decade, the Japanese public sector has primarily borrowed at floating rates while investing in longer-duration risky assets, earning an annual return exceeding 6% of GDP above its funding costs. We quantify the impact of Japan’s low-rate policies on its government and households. The government duration mismatch expands fiscal space when real rates fall, helping the government fulfill promises to older households. A typical younger Japanese household does not have enough duration in its portfolio to continue to finance its spending plan and will be worse off. Low-rate policies tend to tax younger and less financially sophisticated households.

Keywords: fiscal policy; monetary policy; public debt sustainability; financial repression (search for similar items in EconPapers)
JEL-codes: E62 G12 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2023-11-02, Revised 2025-03-11
New Economics Papers: this item is included in nep-ban and nep-fdg
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DOI: 10.20955/wp.2023.028

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