Abstract  Despite the recent strong economic recovery, growth in wages and prices has been sluggish across the globe. Japan has come to face this issue ahead of any others. The policy authorities of each economy could learn something from the case study of Japan.
Banks’ profits go down but at the same time they are required to make higher loan loss provisions for the non-performing loans. This is the cyclical property of credit losses. This results in banks becoming cautious and restricts lending; as a result the risk spills over to the real sector of the economy. Procyclicality thus has the impact of amplifying business cycles.