“Bank of Japan’s Plan to Increase Interest Rates Sparks Optimism in Yen”

The Bank of Japan is reportedly considering increasing its interest rates after 17 years, following the news of a possible improvement in the yen’s value. This move is anticipated to help mitigate the cost of short-term loans to levels not seen since the global financial crisis of 2008. The central bank, in its current policy stance, appears inclined towards gradually raising interest rates to reach a target of 1% from the current 0.25%. However, analysts believe that this rate hike may not lead to significant turbulence. The overall aim is to curb the devaluation of the yen and is expected to involve considerable efforts.

Following a two-day meeting scheduled to conclude on Friday, the Bank of Japan is contemplating the possibility of raising its short-term policy rate to 0.5%. Previous unfortunate increases in interest rates have caused dissatisfaction among the policy makers at the Bank of Japan. In 2006, the Bank had only just concluded its quantitative easing program, only to find itself constrained by a 0.5% limit on short-term rates in 2007. This move was met with criticism amidst concerns about currency depreciation.

The global financial crisis had put Japan in a vulnerable position, prompting the Bank of Japan to reduce rates from 0.5% to 0.3% in October 2008. Subsequently, in December of the same year, a further reduction to 0.1% was deemed necessary. Since then, the Bank of Japan has maintained a close watch on lending costs, keeping them near zero.

The Bank of Japan’s readiness to raise interest rates contrasts with the US Federal Reserve’s preparations to lower rates, with the yen’s improvement continuing for the past week. The yen, which was trading around 155 yen to a dollar on Monday, had been hovering around 158 yen per dollar the previous week.

The recent yen improvement has also had an impact on remittances from Japan to Nepal, with a significant increase of 3,000 yen for every 1 lakh Nepali rupees exchanged within a week. Previously, the exchange rate for 1 lakh Nepali rupees was around 11,600 yen on Monday, compared to approximately 11,300 yen on January 20. Remittance exchanges are expected to see further adjustments in the coming weeks.

This article was originally published on Japansamachar. For more articles on related topics, visit their website. © Japansamachar.


Author: MAYA | HARUTO
Posted at: January 21, 2025 8:00 am