ABSTRACT
This chapter investigates the impact of quantitative easing (QE) policy on the bank rents in Japanese banks. It briefly enumerates the quantitative easing policy (QEP) adopted by Japan to counteract the deflationary pressure. The chapter suggests the limited instrumental rationality in the economic theory underpinning the QEP and argues that the appropriate level of the market rate may stand on a narrow range of a 'knife's edge'. It links the hypothesis to the empirical data with reference to the effect of Japan's QEP. The chapter shows how the negative interest rate policy creates possible disincentive for banks toward lending activities. It shows that banks' interest spread as a cushion to absorb the borrowers' credit risk squeezed since the inception of the zero interest rate policy (ZIRP) in 1999, and the declining trend continued throughout the entire QE regime. The chapter concludes by summarizing the major arguments and offering some policy implications.
