Japan’s central bank has broken a 17-year trend by raising its borrowing costs for the first time. The Bank of Japan (BOJ) has lifted its key interest rate from -0.1% to a range of 0%-0.1% in response to a surge in wages following a rise in consumer prices.
This move marks the end of negative interest rates in all countries, where depositors had to pay to keep money in banks, a strategy employed to boost spending. The BOJ has also scrapped its yield curve control policy, which involved buying government bonds to manage interest rates, citing concerns about market distortion.
The decision was anticipated as corporate giants in Japan had recently agreed to significant wage hikes, aiming to counter the escalating cost of living. Despite concerns about the impact of inflation, there are expectations that Japan’s economy could benefit from increased productivity and domestic demand.
Looking ahead, the BOJ suggests it won’t be raising rates further in the near term, aiming to maintain accommodative financial conditions. Despite recent economic growth and stock market highs, concerns persist about inflation falling below targets by year-end, potentially influencing future policy decisions.
