The Japanese economy faces an external shock if interest rates are raised.

◀ Anchor ▶:

Japan attracted attention because it raised interest rates for the first time in 17 years.

Let's talk with journalist Seong-il Lee about how it will affect us and whether the Japanese economy has reached a turning point.

I keep hearing that interest rates in Japan are low, but they haven't been raised in 17 years.

◀ Journalist ▶

The Bank of Japan has now raised its benchmark interest rate from minus 0.1% to 0%.

Japan has finally eliminated negative interest rates, which were maintained for the longest time in the world since 2016.

The Bank of Japan ended its stimulus policy to buy ETFs in the stock market, effectively halting almost all emergency measures to stimulate the economy.

The impetus for this decision, which changed the direction of monetary policy, was the announcement of a 5% wage growth rate in Japan, the highest in 33 years.

The inflation rate, which was close to 0% for 20-30 years, has already exceeded 3%.

Now that a corresponding wage increase has been achieved, the central bank can be considered to have decided that it has solved the last puzzle of the economic virtuous cycle.

◀ Anchor ▶:

I think it could be seen as a historic decision, but I heard the market reaction was a little lukewarm.

◀ Journalist ▶

In theory, if interest rates were raised, the yen should strengthen.

If you look at the market over the last few days, the direction hasn't moved that much.

Stock prices that were expected to fall have actually risen.

There was no shock because it was a long announced rate hike.

The market seems to interpret it this way.

In addition, the cautious position of the Bank of Japan is also mentioned as an important reason.

They have announced that they will be cautious about raising interest rates further in the future.

I am currently buying Japanese government bonds as they have also announced their intention to continue this easing policy for the time being.

◀ Anchor ▶:

Be careful, it's not a perfect transition yet.

◀ Journalist ▶

Yes!

◀ Anchor ▶:

Growth rates and wage growth have picked up as expected, but why are you so cautious?

◀ Journalist ▶

Also, what about the Japanese economy?

Corporate profits have risen slightly over the past three years.

Last year, the growth rate was relatively high.

However, this has always been assessed as unsustainable growth achieved due to an abnormal financial environment such as negative interest rates.

The world's major economies began raising interest rates by mid-2022 at the latest, but Japan alone continued its policy of easing negative interest rates without raising interest rates for nearly two years.

If interest rates were raised and the yen strengthened, and Japan's domestic demand and consumer sentiment remained the same, there was no doubt concern that growth rates could fall quickly.

Even if it is not an interest rate increase.

The rate of growth predicted by the Bank of Japan and the IMF for this year is very slow, not exceeding 1%.

Although it was not certain that it had avoided a long-term recession, it seemed that Japan, which should have found an opportunity to “escape from abnormal policies”, recently took a short detour and used it as an opportunity.

◀ Anchor ▶:

We are in such a situation that we cannot be sure even if the interest rates are raised several times, as in our country or in the USA.

◀ Journalist ▶

Yes, that's one of the reasons.

When the Bank of Japan raises interest rates, there are times when people talk about a fluke, a kind of bad luck, where a major event happened that could shake the economy.

In 2000, when Japan's IT bubble began to burst in the US, it raised interest rates, which were then 0%, and was shocked when the US economy did worse than expected.

Less than two years later, in 2006, when interest rates were raised again, the global financial crisis broke out in the United States.

In order to control the situation, there would be no other way than to reduce the interest rates again.

From the Bank of Japan's point of view, it can be expected to be an unexpected shock, but there is an interpretation that it served as an opportunity to carefully consider raising interest rates in the future.

◀ Anchor ▶:

I see what consequences they can have for us.

◀ Journalist ▶

Not yet, but if the yen moves, it will definitely have an impact.

Consumers, however, may have different attitudes than companies.

28% of foreign tourists entering Japan last month were from Korea, making it the world's largest tourist destination.

If the yen strengthens as expected, travelers will have to spend more than they do now to be able to travel to Japan at the same level.

Also, as expected, companies competing with Japanese companies will have an advantage in price competition when the yen appreciates.

This is the reason why the stock prices of ship and car manufacturers rose just before the interest rate hike in Japan.

It looks like there is reason to watch closely in the future to see which direction the yen will go.

◀ Anchor ▶:

Reporter Seong-il Lee, I listened carefully.

Leave a Comment