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What About Japan?

In: NBER Macroeconomics Annual 2026, volume 41

Author

Listed:
  • Yi-Li Chien
  • Harold Cole
  • Hanno Lustig

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.
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Suggested Citation

  • Yi-Li Chien & Harold Cole & Hanno Lustig, 2026. "What About Japan?," NBER Chapters, in: NBER Macroeconomics Annual 2026, volume 41, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:15418
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    Cited by:

    1. is not listed on IDEAS
    2. Fabrice Collard & Michel Habib & Ugo Panizza & Jean-Charles Rochet, 2024. "Sovereign Debt Sustainability with Involuntary Default," Working Papers hal-04822341, HAL.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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