Japan ends era of cheap loans as interest rates hit a 30-year high

New Delhi (The Uttam Hindu): In a landmark move for Japan’s economy, the Bank of Japan on Friday announced a sharp hike in interest rates, raising them to 0.75 percent amid mounting inflationary pressure. This decision is historic as it marks the highest interest rate level since 1995 nearly three decades ago. Under Governor Kazuo Ueda, the central bank has effectively brought an end to Japan’s long-running era of near-zero or ultra-cheap borrowing.

The decision had been closely watched by financial markets and economists and largely matched expectations. Experts had already anticipated that short-term interest rates could be increased from 0.5 percent to 0.75 percent. The quarter-percentage-point hike in the benchmark rate means borrowing costs in Japan will now rise, signalling a major shift from the country’s long-standing accommodative monetary policy.

This policy change comes at a time when Japan’s newly appointed Prime Minister Sanae Takaichi is grappling with persistent inflation. Since both Prime Minister Takaichi and Governor Ueda assumed office, this is the first instance of an interest rate hike, highlighting a clear change in economic strategy.

For years, Japan relied heavily on aggressive monetary support to sustain growth. However, sustained inflation has now compelled the central bank to rethink its approach. Governor Ueda is expected to elaborate on the implications of this decision and outline the bank’s future policy direction in a press conference scheduled for later today, an event that will also be closely monitored by global markets.