Lesson from Japan: Do low interest rates boost growth?
Arakawa City, in the north-east of Tokyo, was once full of small-town factories.
Today, only a few remains.
Hosobuchi Electric Lamp is one of the survivors. Workers here have rare skills, making all types of medical equipment light bulbs.
Tiny bulbs called ophthalmoscope and retinoscope that are used by eye doctors are made here. It is the only factory to do so in Japan and one of just a few in the world.
But despite having such competitive products, Hosobuchi's business outlook is not rosy.
"Since the Lehman shock, demand for our products has fallen and many businesses in our neighbourhood and in our industry have gone bust," says the director of the company, Kenji Takahashi.Reduced borrowing
In part to help small companies such as Hosobuchi, central bankers in Japan have been keeping interest rates low, in order to reduce their borrowing costs.
End Quote Kenji Takahashi Hosobuchi Electric Lamp
The truth is we don't have enough businesses or the need for investments to borrow the money”
Japanese interest rates have been close to zero since the mid-90s, but it has not offered a miracle cure.
"Low interest rates make it easier to borrow money, so we appreciate it," says Mr Takahashi.
"But the truth is, we don't have enough businesses or the need for investments to borrow the money."
Hosobuchi is not alone in its reluctance to borrow.
"The size of corporate debt went from 147% of Japan's gross domestic product (GDP) in 1990 to 125% in 2000," according to Jesper Koll, Japan director of research at JP Morgan.
"By 2011, it had fallen to 99% of GDP."Bigger headache
Lamp maker Mr Takahashi says the strength of the Japanese yen is the company's biggest headache.
"Compared to 1998, when we first started selling subway light bulbs overseas, the yen has strengthened from 144 yen to the US dollar, to about 78 yen today," he says.
"That's doubled the price of our products for our overseas customers, which of course makes us less competitive," he adds. "And we get 75% of our revenues abroad."
But with interest rates already close to zero in Japan, there is no scope for further cuts that would help reduce the value of the yen.
"It seems like all governments around the world are implementing weak currency policies, except for Japan," Mr Takahashi says.Home buyers
So if not small businesses, who does benefit from low interest rates?
Yoshifumi Tachibana, 32, might be one. He recently bought an apartment worth 60 million yen (£478,782; $766,430) in central Tokyo.
"I was told I'd get the best mortgage rate if paid about 20% up front, so I did," he says.
"Low interest rates were definitely one of the reasons for me to decide to buy my first home. I borrowed 47 million yen and I am on a 35-year repayment plan with an interest rate of 0.075%."
But despite such attractive rates, real estate agent Hidetaka Miyazaki says he has not seen an increase in the number of buyers and investors in the last 20 years, especially not in sub-urban areas.
Memories of how home owners suffered when the bubble burst and prices tumbled during the late 1980s are also putting off some buyers.
"I think it is in the Japanese people's nature not to take risks with their money," Mr Miyazaki says.
"At a prime location like here," Mr Miyazaki says, pointing to a property development in Roppongi, a wealthy Tokyo district, "all the units sold out immediately.
"But low interest rates are not enough to attract more buyers in other areas."Financial socialism
Borrowing in Japan did pick up during the 1990s, when Japan was cutting rates to fight the economic recession.
"People took advantage of low rates at the beginning in 1990s," says Mr Koll.
"If you look at statistics, household debt - that is mortgages, credit card debt and car loans - went from 66% of Japan's GDP in 1990 to 74% in 2000.
"But at the end of last year, it was back down to 66%... so the biggest beneficiary of low rates is the Ministry of Finance and governments.
"The public sector borrowing went from 59% of GDP in 1990 to 131% in 2000. At the end of last year it was 226%."
The size of Japan's debt has been worrying investors and the country's credit ratings have been downgraded by agencies such as Standard & Poor's, Moody's and Fitch Ratings.Doing damage?
So what lessons can the world learn from Japan?
"Low rates do not boost private demand, private risk-taking or entrepreneurship," according to Mr Koll.
"But they allow for bigger and bigger government role in the economy.
"Clearspeak," he continues, "low rates encourage financial socialism and crowd out private risk takers and initiative."
These are the very qualities in businesses that US and other Western economies have been proud of, not least because consumer demand in those nations has provided a major engine for economic growth.
Since the financial crisis hit, however, central banks around the world have been lowering interest rates to boost their economies.
Though if the Japanese experience is anything to go by, they might be running the risk that low rates may end up doing more damage than good.