Why are interest rates in Japan so low or just 0.25%?

Answer 1

Japan experiened deflation for 12 Yrs. which ended in july this year(2006). The problem of deflation is that the prices keep falling down as a result consumers put off their purchases for the future when the prices fall still more. As a result the manufaturers do not get their stocks cleared and hence lot of debts and losses arise. Banks kept lowering the rates to keep the enconomy from running into a severe recession. Japanese economy had kept zero interest regimn for some period. Japanese bank infused a lot of money into the banks so that thay can lend it to the corporates to prevent them from going bankrupt. Now as the US has increased the interest rates the international economic effect has made Japan raise the rate. Also the japan is now recovering from a decade long recession.

Answer 2

There are a number of reasons. Japan has had a slumping economy for over ten years. In order to keep employment high, rates are kept at low rates.

A second reason is that the Japanese save much more than other countries. This keeps spending down (hence keeps inflation low) and keeps demand for safe investments high (hence low interest rtes).

Answer 3

They are in the classic "liquidity trap," of John Maynard Keynes. The LM curve is nearly horizontal at these rates and the IS curve interesects it in this region, so shifts in the LM curve have no effect as the LM curve just slides along the IS curve. Money and bonds in effect become equivalents. The traditional supply side equation of the LM curve M/P or money over price level becomes M/Pe or money over expected future price level. It is the future expectation of deflation that makes the liquidity trap a problem. People believe money will be more valuable in the future by simply holding it. By refusing to give up money holdings, no one buys anything and prices continue to fall, but instead of triggering purchases, it triggers more money hording. The population in effect shrinks M itself instead of the central bank. So rates cannot go to 0% or bonds would be currency. Currency is nothing more than non-interest bearing bonds. The central bank is trying to expand M by using bonds as a loose proxy for cash in effect expanding M.

Answer 4

that is bcoz the economy in Japan is not growing and is facing deflation (in which prices of commodities and income of population is not increasing) and is actually contracting so to boost Credit demand in the economy and arrest the deflationary trends the interest rates are kept low, sometime back they were 0 as well.

Answer 5

Due to fast developing economy.