The Bank of Japan Hiked Rates for the First Time in 17 Years

By: Anneken Tappe · March 20, 2024 · Reading Time: 2 minutes

No Longer Negative

While investors are anxiously awaiting the first interest rate cut by the Federal Reserve, the Bank of Japan just delivered very different news: For the first time in 17 years, the central bank raised interest rates.

Inflation has been a primary concern for American policymakers, companies, and consumers for several years now. Japan has faced the opposite problem for decades. Its central bank has battled deflationary tendencies since before the turn of the century, and hasn’t raised benchmark rates since 2007 — until now.

After years of negative interest rates intended to stimulate Japan’s economy, the Bank of Japan (BOJ) has raised rates from -0.1% to a range of 0%-0.1%. This might not sound like much, but it’s a major shift in the country’s policy.

Inflation Increase

America’s Federal Reserve raised its benchmark interest rate at an historic pace in an attempt to bring inflation down to 2%. Japan also faced a tough road to reach its own 2% target rate — but it was coming at it from the opposite direction: deflation. The country’s economy has struggled to grow since the early 1990s.

Japan’s most closely watched inflation metric showed prices increased 3.5% year-over-year in January, following a 3.7% increase in December. This, alongside accompanying wage increases, played a significant role in the BOJ’s decision to hike rates. The thinking is this: If people make more, they spend more, spurring price increases and economic growth.

Market Reaction

Japan’s Nikkei stock index finished higher, Japanese bond yields fell, and the Japanese yen dropped to a four-month low in value against the U.S. dollar.

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