The Bank of Japan raised interest rates from zero for the first time in six years, in a move that reflected growing confidence in the country’s economic recovery.
The nine members of the central bank’s board voted unanimously in favour of a modest rise of a quarter of a percentage point. The bank said in a statement: ”The decision will contribute to ensuring price stability and achieving sustainable growth in the medium and long term.”
The rate rise came after months of speculation over whether Japan had truly beaten deflation and warnings from senior politicians that ending cheap credit too soon could stifle the country’s comeback from 10 years of recession.
Japan had kept interest rates at near zero since 2001 in an attempt to end falling prices and the resulting lower corporate earnings and shrinking salaries that characterised Japan’s so-called ”lost decade”.
The bank governor, Toshihiko Fukui, said the decision had been taken with Japan’s long-term economic interests in mind. ”We are finally entering a period of having interest rates. That is a delightful moment for the future of the Japanese economy … This is an important step toward normalisation of monetary policy in line with economic conditions that have become normal.”
The decision brings Japan’s monetary policy into line with the United States and Europe. Last month, the European Central Bank raised its key interest rate to 2,75% and the US Federal Reserve has increased rates 17 times in a row to 5,25%.
The bank’s board appears to have been swayed by recent data showing that Japan appears at last to have pulled itself out of recession. Last month, the bank’s Tankan survey of business sentiment showed that large firms were planning to increase investment in plant and equipment this year by more than 11%, the biggest rise since 1990. Japan’s economy has expanded for five quarters in a row and growth of up to 3% has been forecast for this year. The consumer price index, meanwhile, rose 0,6% in May, its seventh monthly gain.
The bank was confident the economy would continue to grow. Acknowledging fears that higher borrowing costs could stifle recovery, the bank said: ”Very low interest rates will probably be maintained for some time.” — Â