© Reuters. FILE PHOTO: People walk in front of the Bank of Japan building in Tokyo, Japan January 23, 2024. REUTERS/Kim Kyung-Hoon/File Photo
TOKYO (Reuters) -The Bank of Japan has made “the appropriate policy decision at the appropriate time”, the head of Japan’s biggest business lobby said, welcoming Governor Kazuo Ueda’s move to hike interest rates for the first time in 17 years.
“I think the BOJ has caught the indications that a virtuous cycle between wages and prices has started,” Keidanren Chairman Masakazu Tokura told reporters.
As widely expected, the BOJ announced on Tuesday it would end eight years of negative interest rates and other remnants of its unorthodox policy. But analysts expect it will keep rates stuck around zero for some time as a fragile economic recovery forces it to go slow on any further rise in borrowing costs.
The central bank’s decision was preceded by news of stronger-than-expected pay rises by companies, raising hopes of higher household spending that would feed into more durable growth in the broader economy.
“Moderate price increases are favourable for the economy as a whole, and we like the fact that the revision was conducted with the 2% price stability target in sight,” Ken Kobayashi, chairman of the Japan Chamber of Commerce and Industry, said in a statement.
With inflation having exceeded the BOJ’s 2% target for well over a year, many market players had projected an end to negative interest rates either this month or next. In a sign future rate hikes will be moderate, the BOJ said that financial conditions will remain accommodative for the time being.
“As businesses and individuals, we will need to gradually prepare for a world with interest rates,” Takeshi Niinami, chairman of the business lobby Keizai Doyukai who also heads brewer Suntory Holdings, said in a statement.
“Full-fledged growth of the Japanese economy will not be achieved by monetary policy alone,” he added pointing to the need for companies to do more in areas such as improving productivity.
