March 22, 2024 - 10:00am


The Bank of Japan has finally announced an interest rate hike, its first in 17 years. After seemingly endless rumours, the country’s unconventional monetary easing policies are being unwound with the bank declaring that a new era of stable inflation has begun.

The reaction to the news here in Tokyo is generally, cautiously positive. After years of a sclerotic economy and, to quote Niall Ferguson, “institutionalised inertia”, at long last something is happening. The Keidanren (the most important of Japan’s business lobby groups) called it “the appropriate policy decision at the appropriate time”, while the Chamber of Commerce declared it “favourable”.

The negative rate policy, whereby banks pay to park their money at the central bank, originated in 2016 as part of the previous BOJ governor Haruhiko Kuroda’s attempt to tame deflation, a legacy of the post-bubble economy years. The same methods were employed by the European Central Bank and the Swiss National Bank.

There is not much evidence it did any good; but while the experiment was abandoned elsewhere, in Japan it endured, possibly due to Kuroda’s personality and his stubborn refusal to give up on his signature inflationary dream.

When Kuroda stepped down last April, the new broom was expected to sweep clean. He has taken his time, but successor Kazuo Ueda finally found the impetus for scrapping the world’s last negative rate policy when positive data indicated a healthy wage/price increase cycle. Salaries are up 5.28% according to Rengo, the largest labour organisation, as are prices, which were given a boost by the rising cost of imports following the outbreak of the Russia-Ukraine war.

The significance of the hike is probably less the immediate effect it will have on the Japanese economy — the yen actually fell when Ueda ruled out further rate increases — but more how it fits into what looks like a more flexible and dynamic approach to longstanding issues from the government of Fumio Kishida.

Take immigration as an example. For years, the Japanese refused to contemplate increases despite labour shortages and a critically ageing population. Recently, though, new visa categories have been created, greatly facilitating the ingress of skilled and unskilled workers. The number of foreign residents in Japan rose to a record 3.2 million last year.

Japan has also revised its position on nuclear energy, with plants mothballed since the Fukushima disaster of 2011. In February 2023, Japan’s Cabinet approved the construction of new nuclear power reactors while the operational life of existing reactors was extended from 40 to 60 years.

Necessity has been the mother of invention in much of this, but it can hardly be coincidental that these shifts have happened as the old guard has melted away. After the assassination of former prime minister Shinzo Abe in 2022, his powerful faction within the ruling LDP (Liberal Democratic Party) has failed to find a successor. And this year a slush fund scandal led to the group’s auto-dissolution after 45 years of dominating Japanese politics.

There is a feeling of new beginnings here in Japan, of space opening up. Enormous problems remain, but at least these problems are being properly acknowledged and realistic solutions proposed. Ueda’s rate hike may be tiny (-0.1 to +0-0.1%) but it feels like a movement in the right direction, a movement paralleled elsewhere in this endlessly resilient society.

Philip Patrick is a lecturer at a Tokyo university and a freelance journalist.