The Bank of Japan raises interest rates for the first time in 17 years. The Bank of Japan (BOJ) has opted to raise its key interest rate for the first time in nearly two decades.
Previously held at -0.1%, the rate has now been lifted to a range of 0% to 0.1%.
This shift comes as Japan’s economy grapples with a surge in consumer prices and a notable uptick in wages.
Japan raises interest rates
The BOJ introduced negative interest rates back in 2016 in an attempt to rejuvenate Japan’s stagnant economy.
However, with wages climbing and consumer prices on the rise, the central bank has chosen to reverse its previous monetary policy.
End of Negative Interest Rates Era
With this rate hike, Japan now joins the ranks of countries without negative interest rates, signaling a departure from the unconventional monetary policies adopted in recent years.
Moreover, the BOJ has decided to discontinue its yield curve control (YCC) policy, which had involved the purchase of Japanese government bonds to manage interest rates.
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This shift away from YCC has been criticized for its impact on long-term interest rates.
Inflation Targets and Wage Increases
Despite a slowing rate of price growth, Japan‘s core consumer inflation remains steady at the BOJ’s targeted 2%.
The decision to raise interest rates was largely influenced by major corporations in Japan raising wages for their employees, aiming to counterbalance the rising cost of living.
Implications for the Economy
The recent wage hike, the most significant in over three decades, marks a notable departure from the prolonged period of stagnant wages witnessed since the late 1990s.
However, the return of inflation poses both opportunities and challenges for Japan’s economy, depending on whether it is domestically driven or influenced by external factors such as supply chain disruptions.
Resilience amid Global Uncertainty
Despite the economic challenges posed by the COVID-19 pandemic, Japan’s economy has displayed resilience in recent months.
The Nikkei 225, the country’s main stock index, reached an all-time high in February, while Japan managed to avoid a technical recession as its economic growth figures were revised upwards.
Global Monetary Policy Shifts
The decision by the BOJ to raise interest rates reflects broader trends in global monetary policy.
While some countries initially resorted to negative interest rates in response to the pandemic, central banks like the US Federal Reserve and the Bank of England have since shifted their focus towards raising rates to combat inflationary pressures.
