Investors are closely watching the Bank of Japan after the central bank said it intends to continue raising rates gradually. Increases in benchmark lending rates offer a test of whether Japan’s emergence from decades of deflation is sustainable.
The Bank of Japan decided on Wednesday to more than double short-term interest rates to around 0.25 percent from roughly 0 to 0.1 percent. The hike was the first since March, when the central bank ended its negative interest rate policy. The benchmark is now at the highest since December 2008.
Following the increase, Japan’s three major banks said they will push up their ordinary deposit rates to 0.10 percent per year. That’s five times the 0.02 percent they had been offering.
Interest rates for housing loans and lending rates for businesses are also expected to be raised.
BOJ Governor Ueda Kazuo has told reporters he intends to continue raising interest rates.
He said the impact of the additional rate hike on the economy is limited.
The governor said that further rate hikes would depend on the economy, wages and prices moving in line with BOJ projections.
Japan has had ultra-low interest rates for about 30 years amid persistent deflation.
The challenge for the central bank is how to realize a virtuous cycle between wages and prices while continuing to raise interest rates.