Why did the zero interest rate policy start in Japan?
Can you give me some kind of specific reason?
- Anonymous1 decade agoFavorite Answer
Zero Percent Interest Rates in Japan started because their economy collapsed in the late 80s and early 90s. The resulting effect was massive "Deflation". Everything went down in price. A building that might have cost $1/billion was now $100/million. Bad news for the people holding that asset and still paying $1/billion dollars on the loan.
As a result, spending in Japan came to a halt. And as central banks go, the best way to spur spending is to lower interest rates. And Japan lowered it to the max. Zero Percent. Yet still it couldn't get the economy jump started.
Thats the thing about deflation, its much more destructive to an economy than inflation. Those in the real estate business know that feeling all too well. Homes that went for $800k and now $500k or less and still aren't moving. Just be glad the real estate deflation isn't across the entire economy.
- Anonymous1 decade ago
because it is a drastic measure to pump up a sick economy at that time.