What about Japan?
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.
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Copy CitationYi-Li Chien, Harold L. Cole, and Hanno Lustig, "What about Japan?," NBER Working Paper 31850 (2023), https://doi.org/10.3386/w31850.Download Citation
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Published Versions
Forthcoming: What About Japan?, Yi-Li Chien, Harold Cole, Hanno Lustig. in NBER Macroeconomics Annual 2026, volume 41, Ramey and Violante. 2026
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