Who Pays for “Normalization”
The Bank of Japan raised its benchmark interest rate to 1% on Tuesday, pushing the uncollateralized overnight rate up by a quarter of a percentage point from 0.75% and landing it at a three-decade high. For ordinary people, that means the central bank is once again choosing who absorbs the pain of its policy shifts: households, workers, and borrowers at the bottom of the ladder, while the financial apparatus debates “normalization” from above.
The central bank said it was acting because of challenges stemming from a weak Japanese yen and higher prices. It has been trying to normalize monetary policy lately after decades of keeping interest rates near or below zero. That long stretch of ultralow rates was adopted to try to encourage more borrowing and spending to counter deflation and pull the economy out of the doldrums.
The Costs Land Below
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. The bank said in a statement that the economy has recovered but the rise in crude oil prices, given “the situation in the Middle East,” will push down corporate profits and household incomes. That is the familiar hierarchy of crisis: decisions and shocks at the top, losses pushed downward onto people who have to live with the bill.
Low interest rates have also added to pressures on the Japanese yen, which has fallen lately to about 160 yen to the U.S. dollar. The central bank said the economy is expected to continue growing moderately, helped by government measures and private business activity. But it 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 People in the Room
BOJ Gov. Kazuo Ueda, who has been hospitalized recently, did not attend Tuesday’s policy board meeting. Deputy Gov. Shinichi Uchida, who took his place at the news conference, said prices were generally stabilizing at the bank’s 2% inflation target, despite the uncertainties from the war in Iran. Uchida said Ueda’s viewpoints were understood and his absence did not hurt the decision-making.
“I feel sad about his absence, but it did not affect our ability to set policy,” he told reporters, adding that Ueda’s hospital stay wasn’t expected to be long. He said that, although currency fluctuations are not a direct focus on the Bank of Japan, the weak yen was being carefully monitored. He also said the central bank will continue to raise rates.
Before the BOJ decision, Tokyo’s benchmark Nikkei 225 index briefly topped 70,000 early Tuesday before giving up some of those early gains and finishing up 0.1%. In stock markets abroad, indexes rose in Europe following a mixed performance in Asia. The numbers moved, the officials spoke, and the people who will live with the consequences were left outside the room where policy was made.