Given that private banks borrow short-term debt and finance longer-term lending, their profits grow if the term spread increases.
In this way, a virtuous cycle from income to spending has been operating steadily in both the household and corporate sectors. With this mechanism intact, Japan’s economy is expected to continue its moderate recovery trend, and the effects of the decline in demand following the front-loaded increase are expected to wane gradually. Next I will discuss the household and corporate sectors, respectively.