ISLAMABAD, JULY 31: In another move away from its long-standing ultra-loose monetary policies, the Bank of Japan raised its main interest rate on Wednesday for just the second time in 17 years. The central bank said in a statement that it had abandoned its unconventional negative rate policy, which was intended to spur economic development, and had instead set an interest rate of 0.25 percent, up from about zero to 0.1 percent.
Following a two-day policy meeting, it made its decision, which sent the yen temporarily into a brief bull market before it fell to levels over 153 per dollar.
Officials “will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation” if the fourth-largest economy in the world performs as predicted by the bank.
There was disagreement among analysts on when the BoJ would raise interest rates; some projected that due of Japan’s weak consumption, officials would hold off until the fall. Additionally, although salaries are growing and unions have secured their largest gains in thirty years this year, workers’ income has not kept up with the rate of inflation. The bank is attempting to normalize its unusually permissive policies, which have caused the yen’s value to decline.
However, there have been worries about how a raise may affect economic expansion. Moody’s Analytics’ Stefan Angrick said prior to the announcement that even a slight rise would likely cause more difficulties.
Worst case, he warned, “it would tip the economy into recession and precipitate broader disruptions in the financial markets.
” AFP was informed by T&D Asset Management’s Hiroshi Namioka that a rate increase was “appropriate.”
“There will be a limited impact on the real economy, which includes capital investment and consumption,” he stated.
For the past 2.5 years, the yen has lost value relative to the dollar, in part because the BoJ has maintained extremely low interest rates to boost the economy while other central banks have raised their own.
It reached its lowest point since 1986 at the beginning of July, but it has since rebounded, leading some to speculate that government intervention may have occurred. The Federal Reserve is scheduled to make a policy announcement later in the day after the BoJ decision.
