International | Jul 14 2006
By Chris Shaw
The era of the zero interest rate policy or ZIRP is now over in Japan, with the Bank of Japan (BOJ) moving as expected and lifting official interest rates by 0.25% today.
The move has come as little surprise to market watchers, who had all but agreed rates were going higher, the only area of discussion being the size of the increase. Some had predicted a 0.15% increase given deflation has not officially been declared dead, but market consensus had focused on a 0.25% increase.
The yen has softened slightly on the news, immediately spiking to about 115.85 and currently trading at about 115.8 to the US dollar against 115.5 earlier in the day. The currency’s direction will depend in part on the outlook for future rate rises, with most in the market expecting the BOJ will take a conservative view towards further increases in rates in the medium term.
While there has been some government opposition to the move towards higher rates, the BOJ stance is the economy has continued to expand over the last four years and inflation is showing signs of picking up, meaning zero interest rates or negative real rates are no longer appropriate.
