Japan’s central bank has raised the cost of borrowing for the first time in nearly a decade after in 17 years. The Bank of the Japan(BOJ) increased its key interest rate from 0.1% to a range of 0%-1%. It comes a wages have jumped after consumer prices rose.
For after 17 years , central bank has kept interest rates on hold, an extraordinary period of monetary accommodation by an institution wrestling with a stagnant economy. As inflation has increased and economic conditions improved, the Bank of Japan decided to act yesterday.
To stimulate the country’s stagnating economy, in 2016 the bank cut the rate below zero. This hike means that there are no countries left with zero interest rates. The BOJ has ended the world’s largest negative interest rate. When negative rates are applied, people have to pay to deposit money in a bank. There have been multiple cases were countries were they encourage people to spend rather than putting it in a bank.
BOJ also abandoned a policy known as Yield curve control(YCC),which it saw buying Japanese government bonds to control interest rate. YCC Policy has been since 2016 but is criticized for distorting markets by keeping long-term interest rates from rising.
Bank of Japan and its statement
BOJ in a statement announcing the decision, said it will keep buying “broadly the same amount” of government bonds as before and ramp up purchases in case yields rise rapidly. Since last year’s April when Kazo Ueda took office in April, expectations that BOJ would finally raise rates.
As per the Statistical report, even though the rate of price rises has been slowing, Japan’s core consumer inflation held at the bank’s 2% target in January. They announced that finally hike rates hinged on the country’s major corporations increasing wages for their workers to help them cope with the rising cost of living, Nobuko Kobayashi from the consulting firm EY-Parthenon.
Earlier this month, Japan’s biggest companies agreed to raise salaries by 5.28%-the biggest wage hike in more than three decades. Wages in the country had flatlined since the late 1990s as consumer prices rose very slowly or even fell.
But as per Kobayashi, “inflation could be both good and bad news for the economy. Good, if Japan can stimulate productivity and domestic demand. Bad, if inflation stays externally-driven by things like war and supply chain disruptions.”
As of BOJ has alerted that there won’t be any further rate hikes for now as it anticipates that “accommodate financial conditions will be maintained for the time being.”
Research firm Capital Economics, Marcel Thieliant wrote, “With inflation coming off the boil now, it seems likely that trade unions will push for smaller pay hikes in next year’s talks.
Last in February, Japan’s main stock index the Nikkei 225 hit an all-time closing high, surpassing the previous record set 34 years ago. This month, the country had avoided falling into a technical recession after its official economic growth figures were revised.
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