TOKYO (AP) — The Bank of Japan raised its benchmark interest rate to 1% on Tuesday, pushing borrowing costs to a three-decade high while citing the weak Japanese yen, higher prices and pressure from inflation. For ordinary people, the central bank’s move means the people at the bottom are left to absorb the fallout from decisions made by monetary authorities trying to manage an economy they control from above.
The increase in the uncollateralized overnight rate, by a quarter of a percentage point from 0.75%, comes after decades in which the central bank kept interest rates near or below zero. That long experiment in monetary engineering was designed to encourage more borrowing and spending and to counter deflation, but the latest move shows the apparatus shifting again as prices rise and the currency weakens.
Who Pays for the “Normalization”
The central bank said the economy has recovered, but it also warned that the rise in crude oil prices given "the situation in the Middle East," will push down corporate profits and household incomes. That is the hierarchy in plain view: policy makers talk about recovery while households and workers are the ones expected to absorb the hit. The bank said the economy is expected to continue growing moderately, helped by government measures and private business activity.
Inflationary pressures because of the war in Iran, which has sent oil prices soaring in recent months, have hit Japan hard since it imports almost all its oil and gas. Low interest rates have added to pressures on the Japanese yen, which has fallen lately to about 160 yen to the U.S. dollar. The costs of global conflict and financial maneuvering land on people who have no say in either.
The Central Bank’s Warning List
The bank warned that close attention needs to be paid to what happens in the Middle East, foreign exchange and financial markets, as well as "developments in global AI-related demand." The language is technocratic, but the message is simple: the central bank is watching the markets, the currency and the wider economy as it tries to keep control over conditions that ordinary people must live through.
The central bank has been trying to normalize monetary policy lately after decades of keeping interest rates near or below zero. It adopted ultralow rates to try to encourage more borrowing and spending to counter deflation and pull the economy out of the doldrums. Now, after years of intervention from above, the same institution is tightening again, with the burden likely to be carried by households, borrowers and workers rather than by the people issuing the orders.
Power at the Top, Consequences Below
BOJ Gov. Kazuo Ueda, who has been hospitalized recently, did not attend Tuesday’s policy board meeting. Deputy Gov. Shinichi Uchida was expected to take his place at the news conference set for later in the day. The names change, the hierarchy remains.
Before the BOJ decision, Tokyo’s benchmark Nikkei 225 index briefly topped 70,000 early Tuesday before giving up some of those early gains. The market’s brief surge and retreat sat alongside the central bank’s rate hike, another reminder that financial numbers can jump around while the people outside the trading screens are left to deal with higher costs, weaker currency pressure and the consequences of decisions made in closed rooms.
The Bank of Japan’s move to 1% marks a three-decade high for the benchmark rate. It is the latest turn in a long cycle of monetary control, with the central bank presenting its intervention as management while the effects are carried by households, workers and businesses already squeezed by higher prices and a weaker yen.