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Long Term Interest Rates and Real Estate Investment

Aug 17, 2007
One of the wonderful things about living an international lifestyle, I move back and forth between Australia and Japan to live and work, is that you become more and more aware of the differences that other people may or may not have any idea about. The differences between cultures, business styles, financial systems.... the list could go on indefinitely. It is not my objective to look at every difference here. I want to look at one difference in particular. That difference is the long term interest rates on offer in Japan compared to those available in other parts of the world.

In Japan the long term interest rates are in the vicinity of 2%. When you compare that rate to those on offer in other developed countries it is astounding. In the US they are around 6%, in New Zealand they are near 9%, Australia is looking at 7.5%, the UK near the 6.4% mark... you get the picture. No one even comes close to what is available in Japan.

How is this possible? Because the Japanese government's lending rate is so incredibly low. The Bank of Japan, which has a similar role to the US Federal Reserve, places a .5% lending rate on money it loans to banks. The banks then in turn place an interest rate of between 1% - 1.5% on that to cover their risk and costs involved in lending that money out to borrowers. So you can see how the Japanese interest rate to the borrower is around 2% (often less). And it has been more or less stable over the last 10 years or more.

In the United States (for contrast), the Federal Reserve controls inflation by adjusting the borrowing rate. Every economy has this inbuilt safety feature if you like to stimulate or put the brakes on the economy. Currently they will lend money to the banks are around 5%, the banks in turn do what other banks do around the world, and they add their 1% to 1.5% - covering their risk and giving them a profit. You can see then how the current US rate of 6% to 6.5% is arrived at.

It is interesting to note that the Japanese lending rate from the Bank of Japan has remained more or less constant for many years. It is for all intensive purposes a flat liner. If you were to plot it compared to other rates around the world, the Japanese interest fluctuation line would be almost flat, near the bottom of the table, where as other countries would be represented by lines rising and falling, sometimes dramatically, and in positions well above that maintained in Japan. Basically, Japan offers the lowest and most stable lending rate in the world today.
About the Author
Graham Fenemore
Is a researcher/writer and shares his insights into cultural and business
differences between Japan and other developed nations through articles and blogs.
He has lived and worked in the UK, New Zealand, Japan and Australia.
Click here to visit website.
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