As Emperor Akihito abdicates and Naruhito assumes his father’s role, we thought a review of the Japan and the UK since 1989 might be interesting – the year in which Akihito became Emperor.
First, of course, Akihito’s puny 30 years at the helm rather pales in comparison to Her Majesty’s all-other-UK-monarch-beating 67 years and counting. Back in 1989, too, UK interest rates (using UK base rates as a measure) were a mighty 13% and, like Her Majesty’s efforts, materially more than Japan’s 2.5%. Japan’s bubble burst after the Japanese discount rate was ramped up to 6%. By the end of 1995 Japan had cut rates to 0.5% and, bar an effort in the mid-2000s that saw rates go up to a whopping 75bps, they have remained in “not very much” territory ever since. (Indeed, other policy tools are now used, and the Bank of Japan focusses on the Policy Balance Rate). Thus, Japan has had rates below 1% for almost 25 years and so the phrase “Japanification” was born. Very low inflation, no inflation, or indeed deflation has been the norm and despite reform efforts over the last 5 years the economy has not had sufficient momentum to push rates higher.
This year is the 10th where UK rates have been under 1%. There will some who argue that given the UK’s more open economy and younger population, bar Brexit diversion, UK rates should be substantially higher.
Japan is not the UK, but it is a reminder that even if rates do go up in the UK, the hikes are unlikely to be dramatic.