When faced with a great amount of uncertainty about the future, investors stay away from risks – in other words, they become risk-off – but when such uncertainty is judged small, they become risk-on (Chart 29). The basic background to the yen’s appreciation that lasted until summer 2012 was investors’ preference for safe assets as the European debt problem intensified.
The losses to the lender include the missed mortgage payments during that period, taxes, legal and administrative fees, real estate owned (REO) sales commissions, and maintenance expenses. Additional losses arise from the reduction in value associated with repossessed properties, particularly if they are unoccupied for some period.