Can anyone enlighten me with theories as to why the yen has such low interest rates and also such low M3 growth? Aren't those two factors almost always inversely correlated? Are there other examples or is the yen the only currency in history to sustain this odd combination for so long?
Okay, here's one: with such low rates of interest, there is no need to expand the money supply to pay interest. Or to pay interest on interest already accrued. Whereas, in a country with 5% interest rates, they need to continually expand the money supply to facilitate the rapidly increasing debt load caused by the accrual of interest. I think you'd also find that if the US had 0% interest rates, that money supply growth would be considerably slower, unless, of course, Bernanke was doing helicopter drops.