Japanification is a term describing the economic process of other countries adopting Japanese banking policies: flat, little or no significant growth and inflation and interest rates stuck at zero indefinitely. You may have heard that the BoE, RBA, RBNZ and others are being hit by issues or are discussing the possibility of negative interest rates; these, and almost all the other central banks in the world are undergoing the Japanification process.
Take the current Fed interest rate, which is being held near zero for a long period of time, which is where the Fed will focus most of its work above all else. You could say that the US is now in its Japanification process. So the simplest definition of Japanification is the process of other countries becoming similar to Japan. More specifically, changing to look like the Japanese economy.
Characteristics of the Japanese economy over the past three decades have been sluggish economic growth, persistently low inflation, persistently near zero interest rates, declining population growth rates and a declining labour force, declining productivity growth, increasing central bank assets (through QE) and increasing debt to GDP ratio.
In other words, “Japanification” refers to other countries around the world experiencing the same economic stagnation that Japan has experienced in recent decades. It is a process of rapid accumulation of debt, followed by monetary easing, which protects the government from the normal consequences of excessive spending.
As interest rates approach zero, all kinds of market, economic and social distortions arise. This disruption widens economic disparities, weakens productivity, spurs unproductive investment, causes wage stagnation, and hinders economic growth.
Adi Phangestu
Market Analyst – HFIndonesia
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