Japan’s central bank has raised the cost of borrowing for only the second time in 17 years as it moves to normalize monetary policy in the world’s third-largest economy.
The Bank of Japan (BoJ) increased its key interest rate to “around 0.25%” from the previous range of 0% to 0.1%.
Additionally, the BoJ outlined a plan to unwind its massive bond-buying program, marking a shift away from a decade of stimulus measures.
This decision comes just hours before the US Federal Reserve is set to announce its latest interest rate decision, with an announcement from the Bank of England also expected on Thursday.
“The rate hike was widely expected after domestic media reported the decision ahead of time Tuesday night,” said Stefan Angrick, a senior economist at Moody’s Analytics.
“But the move sits uncomfortably with a poor run of economic data and lack of demand-driven inflation.”
In March, the BoJ raised borrowing costs for the first time since 2007.
In 2016, it cut its main interest rate below zero to stimulate the country’s stagnating economy.
This recent hike means there are no longer any countries with negative interest rates.
Negative rates require people to pay to deposit money in a bank and have been used by several countries to encourage spending over saving.
During the pandemic, central banks worldwide slashed interest rates to counteract the negative impact of border closures and lockdowns.
At that time, some countries, including Switzerland and Denmark, along with the European Central Bank, introduced negative interest rates.
Since then, central banks around the world, such as the US Federal Reserve and the Bank of England, have raised interest rates to curb soaring prices.
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