ank of Japan’s (BOJ) assessment to adopt a negative interest rate to encourage borrowing, spending and investment has failed to have the intended effect as the Japanese government continues to accumulate a debt of 233% of GDP in late 2018. Lower interest rates imposed by the BOJ to revive the economy has failed to intensify the domestic spending and growth remain steady with no indication of rapid growth.
Interest rate predictions over the next 40 years (Reference) highlights that japan will continue to have slow growth and predictable levels of inflation and domestic expansion making the Japanese market a low risk economy. Deflation in japan continues following the collapse of the economy during the early 1990’s price bubble burst. The effects of highly inflated stocks and real estate prices due to its uncertainty was a major contributing factor to the world’s largest debt to GDP ratio.

Following economic bubble burst in the early 1990. The government responded by stringent tariffs and policies to encourage the population to save. As a result, short term interest rate targets and low level of government bond yield were used as tools to boost domestic demand and GDP. However, it has clearly become evident that the use of monetary and fiscal policies has had no bearing on reviving the Japanese economy while the debt continues to grow.

The value of the Japanese Yen (JPY) continues to fluctuate as trade war between China and the USA continues to escalate and trade disputes with South Korea adding additional pressure on the currency. On the other hand, the JPY remains the third most traded currency and its ability to operate a current account surplus continues as 1.21 trillion JPY was recorded in June 2019, ensuring Japan’s ability to act as a net lender. Given that, China and the USA are major exports of japan (Reference), conflict in tariffs will ensure consumers seeking alternative markets with comparative advantage to import goods and services from. Which is clearly evident as the JPY has appreciated against the USD and will continue to appreciate in the short run due to consumers seeking cheaper alternatives. However, the value of the JPY is predicted to fall in the long run as the trade war tensions should conclude.