Many observers argue that higher inflation can have only a small effect on the fiscal position of a country with sophisticated and open financial markets like Japan. Any attempt to raise inflation, they say, will raise the interest rate Japan must pay on new debt issues by an equal amount. The only cost savings will be on the stock of debt that was issued before the rise of inflation, and that is a relatively modest, one-off gain. But the behavior of bond markets belies this argument.
The end of Japan’s lost decades?
June 16th, 2013 · No Comments