Bank of Japan announces fresh stimulus to boost growth

[Art_from_Ark]

5. You really should learn more about the situation here in Japan

Japan's real problems started with the 1985 Plaza Accord, and subsequent "voluntary" export limitations which were like a one-two punch to its export industries. Japanese banks had been making loans to foreign entities in foreign currency, but the Plaza Accord whammied them, too. Think of it this way-- on February 1, 1985, just before the Plaza Accord, the yen was around 260 to the dollar. By April 1988, then yen was at 124 to the dollar.

http://research.stlouisfed.org/fred2/data/EXJPUS.txt

That meant that exporters that had been making a profit at 260 yen or even 200 yen/dollar were finding it increasingly hard to compete because the yen had more than doubled in value against the dollar in just 3 years! And bank loans that were repayable in foreign currency (dollars) were increasingly losing value in yen terms. That also meant that loans that had been made to Japanese companies that were buying properties in the US and other countries were also decreasing in value. So, with falling exchange rates making overseas loans riskier, Japanese banks turned inward. They were loaning money like crazy in the late '80s and early '90s, and then it all came tumbling down.

Today, it's not that banks won't lend money-- I see all sorts of advertisements for low-interest bank loans. If I wanted a mortgage, I could get one for 1.5 to 2%, for example. But Japanese as a whole are not big borrowers. They certainly wouldn't take out a vacation loan, or an appliance loan. Probably not a car loan, either. At the same time, Japanese are big savers. So there is a lot of money sitting in banks, but there is not so much demand for loans from the average Japanese consumer.