Japan’s central bank reaffirmed its commitment to its current ultra-loose monetary policy, in stark contrast to recent interest rate hikes announced by central banks in some developed economies.

The US Federal Reserve on Wednesday raised interest rates by 75 basis points, the fifth time this year, while Switzerland exited negative interest rates by raising interest rates for the second time this year, making Japan the only major economy to maintain negative interest rates. .

The Bank of Japan’s (BOJ) insistence on policy easing has put the Japanese economy and financial markets under increasing pressure. The yen, which has already depreciated by nearly 25% this year, is expected to weaken further amid rising inflation.

Experts believe there are reasons behind the BOJ’s decision to maintain the ultra-low rate policy in the face of a wave of interest rate hikes triggered by the Fed’s aggressive move.


Analysts said higher interest rates could dampen demand, which is not conducive to a sustained recovery. Japan’s core consumer prices in August rose 2.8% year-on-year, above the 2% target set by the BOJ, for the fifth consecutive month, official data showed.

However, Haruhiko Kuroda, the BOJ Governor, said that the price increases in Japan, unlike those in the United States, are due to imported inflation, not the demand-driven inflation desired by the market. central bank.

Wataru Suzuki, a professor of economics at Gakushuin University, said the rise in prices in Japan was mainly due to rising international energy prices, citing that the core consumer price index excluding energy and fresh products only increased by 1.6% in August over one year, below 2%. target, while business prices rose 9% in August.

Consumer prices have not risen sharply in line with business prices, suggesting demand is weak, Suzuki said, stressing the central bank needed to maintain the ultra-low rate policy to support demand.

Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, said the current situation falls far short of the BOJ’s expectations that as the economy improves, wages rise and prices rise steadily.

According to a recent report by the Ministry of Health, Labor and Welfare, the average salary of Japanese workers fell 1.3% year-on-year in July after adjusting for price changes, the fourth consecutive month. year-on-year decline in real wages, which experts say will lead to stagnation in consumption.

Kuroda said amid the Fed’s aggressive interest rate hikes, small steps by the BOJ to raise interest rates won’t help reverse the sharp depreciation of the yen, but could hurt the economy. Japan’s economic recovery.


Some observers say the fact that the Japanese government is heavily indebted makes it difficult for the central bank to raise interest rates now, as such a move would be expected to weigh on the country’s fiscal health.

Data from the Ministry of Finance showed that the ratio of outstanding Japanese government debt, including local government debt, to Japan’s GDP reached 256.9% in 2021 at the end of March 2023.

Kazumasa Oguro, an economics professor at Hosei University, said a rate hike would be a big blow to Japan’s fiscal stability, pointing out that at current interest rates, the Japanese government has to spend nearly 10 Trillion yen a year just to pay interest on its bonds, and spending would double if the central bank raised rates by one percentage point.


Higher interest rates will also increase the burden on businesses. Interest rate hikes will be inevitable as Japan eventually needs to normalize monetary policy, but for now, the timing is not right for a rate hike, given weak corporate performance in the coronavirus pandemic. COVID-19, Kumano said, arguing that without proper export agreements, the number of small and medium enterprises that will not survive in the future will increase.

Some companies were suffering from mounting debt, with companies in the service sector being the most affected, Kumano said, adding that it was difficult for them to pass on the higher costs caused by the rise in interest rates through debt. price increases.

Masakazu Tokura, head of the Japan Business Federation, said while a sharp depreciation of the yen is bad, careful consideration is needed before the central bank changes the course of monetary policy.

The appreciation of the dollar caused by interest rate hikes in the United States is exporting not only inflation but also the first shoots of recession around the world, the Nihon Keizai Shimbun reported.

Some Japanese media and economists believe conditions are not right for Japan’s central bank to raise interest rates, and a forced rate hike could derail the fragile economic recovery and even plunge it into a long-term recession. .
Source: Xinhua

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