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Japan : Land of Rising Rates

Today after 17years Japan entered a neutral to positive interest rate zone and it was after 8years of negative interest rate policy ( NIRP ) ended. Along with it the ETF buying program and yield curve control also ended. But the bond buying will continue.

While everyone is assessing how many and when central banks will cut rates. Bank of Japan has a unique scenario to deal with. After 30 years CPI had a stable rise of 2% or above since April 2022. It has resulted in companies increasing wages by 5.28%, the largest rise in 30 years.

An important change will be in the banking sector where employees are being trained in how to deal with positive interest rates. According, to some reports ordinary deposit rates are considered for a hike from 0.001% set in 2016. Even the reserve amounts of these banks might start earning some interest.

The country assets are reacting mildly for now as the path to this event was well communicated. But the next quarter or two will be important as the new data decides the road ahead. Both side's risks must be well communicated as the level of uncertainty remains high.


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