I’ve been writing over the past couple months about what effect the global macroeconomic backdrop turmoil might have on Japan’s VC and private equity sectors in Japan.

Interest rates — and by extension the cost of capital — remain low in Japan. Given that Japan is one of the few major developed economies that is not suffering runaway inflation, the Bank of Japan sees little impetus to abandon its policy of yield curve control (which keeps interest rates low). At latest print, the consumer price index measure of inflation in the U.S. ticked up to 9.1%, whereas in Japan it still hovers around only 2.5%, and is significantly lower when stripping out food and energy from the calculation.

But why is inflation so low in Japan to begin with ? How has Japan succeeded when nearly every other major economic zone (the U.S., the European Union, the UK, etc.) find themselves behind the curve on galloping inflation ?

To answer these questions, I recommend reading this great piece from Jesper Koll. Here are a few excerpts which I found particularly insightful:

• So, how come, despite greater and more severe exposure to global inflationary pressures, Japanese consumers are much less affected by the global inflation tsunami than their American counterparts? There are two primary reasons: i) The government here is not afraid to intervene in markets to preserve the purchasing power of the people; ii) Japan’s industrial structure is more cutthroat competitive
• Japan is much more fragmented and more competitive, while the US industrial structure has been consolidated and has, de facto, become more oligopolistic. The net result is significantly lower price power for suppliers of goods and services in Japan relative to the United States.
• The reality of a relatively low cost of capital has kept many marginal companies afloat. This, in turn, continues to restrict the price power of Japan Inc. in the domestic market. If your competitors don’t have to care about delivering a proper return or profit, whoever raises prices is doomed to lose customers and market share.
• Not only does the Japanese government see its primary mandate as protecting its citizens from economic shocks, but it also has the necessary parliamentary control and supermajority to act decisively and quickly.
• Where the de facto political gridlock in Washington makes it unlikely that government policies can be mobilized to cushion US consumers against the ills of inflation, here in Japan the government can be counted on.

These are just a few highlights. I encourage you to read Jesper’s full article here.