According to the BoJ [Bank of Japan], a 100 basis-point increase in interest rates across all maturities would lead to mark-to-market losses equivalent to a fifth of tier one capital for regional banks, and 10 per cent for the major banks.
At the same time, rising interest rates could undermine the government’s attempts to improve its own finances, precipitating a fiscal crisis.
Here is further FT coverage. The general point is that very often we — correctly or not — are more willing to live with the distributional consequences of lower inflation than of higher inflation. (This topic should be the subject of dozens of public choice papers, although I don’t from my vantage point see the flow.) The Japanese effort at “Abenomics” may already be faltering, but for political rather than economic reasons. And the elderly defenders of gerontocratic deflation haven’t even spoken up yet, if only because Japanese prices have not yet started to rise. Keep in mind that Japan has had a lot of political stagnation too, and that is not an accident which can easily disappear overnight.