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Japan Increases Rates For The First Time in 17 Years

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Japan’s central bank has abandoned its negative interest rate policy as it begins to wind down one of the world’s most aggressive monetary easing programs.

The maverick strategy, which began in 2013, attempted to jump-start economic development and inflation after the country’s “lost decades” of stagnating activity and prices in the world’s fourth-largest economy.

On Tuesday, the Bank of Japan announced its first hike in 17 years, raising its short-term policy rate from -0.1 percent to between zero and 0.1 percent. The decision-making body “assessed the virtuous cycle between wages and prices, and judged it came in sight that the price stability target of two percent would be achieved in a sustainable and stable manner”, according to the report.

The bank also stated that other unconventional policies, such as its yield curve management program on bonds and the acquisition of risk assets like as exchange-traded funds (ETFs), will be discontinued since they had “fulfilled their roles”.

Following Russia’s military intervention in Ukraine in 2022, the Federal Reserve and other central banks raised interest rates to contain soaring inflation.

However, the BoJ maintained its primary interest rate, which has been negative since 2016. The last hike occurred in 2007.

Raising interest rates will make loans more expensive for consumers and companies. It will also raise Japan’s debt service costs, which are already around 260 percent of national GDP, making them among the highest in the world.

The approach has dramatically devalued the yen versus the dollar, which is excellent for exporters but bad for consumers because it has increased the cost of imports.

The yen fell substantially against the dollar following the statement, to roughly 149.80 per dollar from around 149.30 previously. For nearly two years, inflation has been at or above the Bank of Japan’s two-percent objective.

However, despite some minor modifications, such as increased flexibility in its target range for bond yields, the main interest rate has remained negative.

Also Read: Details Of President Ruto’s Visit To Japan

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