What about Japan?

RePEc Short ID: pch650
ORCID iD: 0000-0002-6820-1197

Chien, YiLi; Cole, Harold L.; Lustig, Hanno

doi:10.20955/wp.2023.028

Working Paper Revision

What about Japan?

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.

JEL Classification: G12; E62;

https://doi.org/10.20955/wp.2023.028