Bank of Japan Discussion Paper Series

RESEARCH - Japan's Negative Risk Premium in Interest Rates: The Liquidity Trap and Fall in Bank Lending, Rishi Goyal and Ronald McKinnon, July 2002.

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Japan's interest rates have been compressed toward zero because of pressure coming through the foreign exchanges. Twenty years of current account surpluses have led to a huge build up of claims - mainly dollars - on foreigners. Because of ongoing fluctuations in the yen/dollar exchange rate, Japanese financial

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