Japans’ government is reportedly considering declaring a formal end to its battle against deflation in a move that paves the way for its central bank to cease negative interest rates for the first time in eight years.
The world’s fourth largest economy has effectively paid borrowers to take out loans since 2016, when interest rates were lowered to minus 0.1pc.
The Bank of Japan lowered interest rates as it sought to bring an end to its decades long battle against deflation, symbolised by the “lost decade” from 1991 to 2001 after its financial bubble burst.
However, inflation has exceeded the Bank of Japan’s 2pc target for more than a year and its government is considering formally calling an end to deflation in the wake of rising prices, according to Kyodo news.
In the last few years the government has maintained that Japan was no longer in deflation, but it has stopped short of declaring a complete victory over falling prices.
Atsushi Takeda, chief economist at Itochu Economic Research Institute, said such an announcement “may suggest that the government and the BOJ may be coordinating with each other to let the markets factor in the prospects for declaring an end to deflation in future and terminating negative interest rates”.
A formal declaration would draw a line under the era of falling prices and economic stagnation that followed the collapse of its “bubble era” boom in the late 1980s.
Last week, the Tokyo Nikkei benchmark soared past the record high for the first time since 1989 and today it surpassed 40,000 for the first time.
A Reuters poll of economists forecast the BOJ will end its negative interest rate policy, in place since 2016, by next month.
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2024-03-04 09:53:00Z
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