Japan's Debt Problem Visualized - Not Good

[Weedlab]

MoHasanie said:

Weedlab said:

The thing to watch though is the relationship between both rates - a rise in inflation is also accompanied by a rise in interest rates, and I bet people will keep their eyes on the interest rate when you consider Japan's debt levels. B

I thought a rise in interest rates leads to lower inflation since people can borrow less money and so consumers have less money to spend so inflation decreases? 

Well ... I wouldn't say it leads to lower inflation, but it is used to combat it with the aim to lower it (and the same things you mentioned are a result of this). There have been situations where the inflation rate has continued to rise despite constantly increasing interest rate levels, and that’s where the situation with Japan’s debt levels comes into focus. Some don’t believe they’ll make the 2% inflation target, but others are worried it may rise too much and cause interest rates to follow suit, increasing the cost of borrowing. So yes, increasing the interest rate does play a part in lowering inflation rate, but how high does it have to go to do so?( Especially when you consider Japan's high debt levels and the cost of borrowing with those interest rate levels).

EDIT Refer To Huiii's post above as well.