The Bank of Japan expectedly raised its benchmark short-term interest rate by a quarter percentage point, to 0.50 percent. The decision has been taken on judging that an expanding economy required higher borrowing costs despite little sign of inflation. The BOJ has further stated that the economy is expected to continue growing and the bank would make further rate adjustment gradually.
Following a robust economic growth in the fourth quarter the bank decided to refrain from tightening credit for seven months after ending its zero-interest-rate policy. Moreover, the bank in its official statement cited weak private consumption and mild inflationary pressure in explaining the bank’s recent decisions against a rate increase.
However, the bank’s decision has also faced criticism as the Liberal Democratic Party has been particularly inflexible on their stance that it is too early to contemplate a rate rise. They argued that even after five years of recovery, the Japanese economy is fragile and has not yet definitively escaped from deflation.
The world’s second-largest economy after the US, Japan’s $5 trillion economy has apparently shown no signs of rising consumer prices or inflation, which is a general trend what central banks normally perceive as an indication for raising rates. In December, a leading consumer price index rose 0.1 percent, in what economists have called another sign that the Japanese are not spending.
In January this year, a senior ruling party lawmaker had asked the government to request a delay in the event of any BOJ rate increase vote. That stirred market talk that last month’s rate decision might have been politically influenced.
