Economists and media sources predicted that Japan’s central bank would abandon its unconventional negative interest rate policy on Tuesday and raise borrowing costs for the first time in 17 years.
After Russia invaded Ukraine in 2022, the US Federal Reserve and other central banks raised interest rates to control the country’s raging inflation.
However, the nation’s “lost decades” of deflation and stagnation dogged the Bank of Japan, which has maintained a negative main rate since 2016. The most recent ascent occurred in 2007.
Although the adjustment would probably be slight, raising the main short-term policy rate from the current -0.1 percent will result in higher lending costs for both consumers and companies.
Additionally, it will raise Japan’s debt service costs, which are among the highest in the world at about 260 percent of GDP.
The goal of the strategy was to encourage banks to lend to businesses in order to boost inflation and the economy, as negative interest rates make banks lose money when they park funds with the BoJ.
In order to inject liquidity into the financial system, the BoJ has also lavishly acquired bonds and other assets.
The yen’s value versus the dollar has significantly dropped as a result of the policy, which is advantageous for exporters but disadvantageous for consumers as it has increased the cost of imports.
