What to know about possible impact of Japan's rate hike
Tokyo (AP): The Bank of Japan raised its key policy rate to a 30-year high on Friday in a widely anticipated move that could rattle world markets.
The two-day BOJ policy meeting wrapped up with the 0.25 per cent hike in its benchmark short-term rate. That took the policy rate to 0.75 per cent, its highest level since September 1995.
In a statement, the central bank said the decision was unanimous and that it expected to raise rates further if there are no major changes in the outlook for the economy.
The 0.75 per cent rate is still low by most standards, but the BOJ has kept that rate near or below zero for years, trying to pull the economy out of a deflationary funk. Since the pandemic, most other central banks, like the US Federal Reserve, have raised rates to counter spiking inflation and then begun cutting them to help their slowing economies recover momentum.
Japan's own economy contracted at a 2.3 per cent annual rate in the last quarter, but improved business sentiment and price pressures have led the BOJ to relent and raise rates. Here are some things to know about its decision.
ALSO READ:PM Modi recalls sacrifices of freedom fighters on Goa Liberation Day
Japan's interest rates rise while other countries' fall
Since Japan's economic bubble burst in the early 1990s, the central bank has kept borrowing costs low to encourage more spending by businesses and consumers.
Lower interest rates have also helped the central bank manage the country's massive national debt, which amounts to nearly triple the size of the economy.
As Japan's population has aged and begun declining, its economy has slowed and that led to deflation, or falling prices due to weak demand. Even with cheap credit, investment has lagged, stunting economic growth.
In early 2013, the central bank launched what was dubbed a “big bazooka” of monetary easing, cutting interest rates and purchasing government bonds and other securities to help channel more money into the economy.
When the COVID-19 pandemic struck, the benchmark interest rate was at minus 0.1 per cent. The BOJ only began raising it in 2024, the first hike in 17 years, after inflation stabilised above its target of about 2 per cent.
A weaker Japanese yen has pushed inflation higher
The Japanese yen has weakened against the US dollar and many other major currencies. That has raised the cost, in yen terms, of imported food, fuel and other items needed to keep the world's fourth largest economy running.
The strong appetite for investing in dollar-denominated shares of companies linked to the artificial intelligence boom has also pulled money out of the yen and into dollars.
So inflation has risen faster than wages, squeezing household budgets and raising costs for businesses.
Higher interest rates are expected to raise the value of the yen against the dollar as investments flow into Japan seeking higher yen-denominated yields. Friday's move would signal the central bank's intention of continuing to “normalise” its monetary policy with further rate hikes next year.
“The BOJ's stance towards rate hikes reflects the fact that inflation is becoming entrenched," Kei Fujimoto, a senior economist at SuMi Trust, said in a commentary. “If drivers such as a further depreciation of the yen accelerate inflation going forward, it is possible that the pace of rate hikes will also increase accordingly.”
The dollar is worth about 156 Japanese yen, nearly twice its level in 2012 and near its highest level this year.
World markets are bracing for impact
Even small changes in interest rates can have a big impact on markets. A rate hike in Japan would undermine an investment strategy known as the “carry trade.” That involves investors borrowing cheaply in yen and then using that money to invest in higher paying assets elsewhere.
Any such major shift is likely to reverberate across world markets. Carry trades are lucrative when stocks and other investments are climbing, but losses can snowball when many traders face pressure to sell stocks or other assets all at once.
A rate hike also is expected to crimp demand for other assets, including cryptocurrencies. Reports last week that the BOJ would go ahead and raise rates caused the price of bitcoin, for example, to drop below USD 86,000. The original cryptocurrency had bolted to record highs near USD 125,000 in early October.
Risks for Japan
Judging the timing and scale of changes to interest rates and other monetary policies are the biggest challenge for central banks, given the time it takes for such moves to ripple throughout the real economy and financial markets.
Like the Federal Reserve, Japan's central bank struggles to balance the need to boost business activity and create jobs with the imperative of containing inflation.
The BOJ held off on raising rates earlier given uncertainties over how US President Donald Trump's tariffs might hit automakers and other exporters. A deal setting US duties on imports from Japan at 15 per cent, down from the earlier plan for a 25 per cent rate, has helped ease those concerns.
BOJ Gov. Kazuo Ueda has indicated he believes wages will continue to rise in Japan as companies compete for a shrinking pool of workers, helping to support growth.
Market watchers will be watching closely to see what Ueda says Friday about the outlook for future rate increases.
Let the Truth be known. If you read VB and like VB, please be a VB Supporter and Help us deliver the Truth to one and all.
44 peacocks die of H5N1 in Karnataka’s Tumakuru; minister orders precautions
Bengaluru (PTI): After 44 peacocks died of the H5N1 virus in Tumakuru district, Karnataka Minister Eshwar Khandre on Saturday directed officials to implement strict precautionary measures to prevent its spread across forest areas, including zoos and bird sanctuaries.
The directive comes after laboratory reports from the ICAR–National Institute of High Security Animal Diseases in Bhopal recently confirmed H5N1 avian influenza as the cause of the deaths.
According to the state forest minister, the peacocks died between April 16 and 21 in and around Bommanahalli and Kolihalli villages in Urdigere hobli, and Bairasandra and Hullenahalli villages in Gulur hobli of Tumakuru district.
“In this context, instructions have been issued in line with the revised H5N1 Action Plan of the Central Government to prevent the spread of infection across all forest areas, including zoos, bird sanctuaries, Magadi Lake, and the community reserve at Kokkare Bellur,” Khandre said in a note addressed to the principal chief conservator of forests (wildlife) and chief wildlife warden.
He also directed that any deaths of birds, whether migratory or local, must be reported immediately, and that samples from carcasses should be collected and sent for testing.
If required, a nodal officer may be appointed to monitor the situation across the state, he added.
Authorities have established an infected zone within a 0–3 km radius and a surveillance zone extending from 3 to 10 km.
According to the Health Department, surveillance for fever, Influenza-Like Illness (ILI), and Severe Acute Respiratory Infection (SARI) will be carried out over the next 10 days, covering a population of 20,432 across 38 villages.
In light of the situation, the department has advised the public to follow precautionary measures to minimise the risk of infection by avoiding contact with sick or dead birds and maintaining hand hygiene by washing hands frequently with soap and water.
It has also suggested the use of personal protective equipment (PPE) while handling birds or their droppings, and advised ensuring that poultry and eggs are thoroughly cooked (above 80 degrees celcius) before consumption.
The health department has also recommended avoiding close contact with individuals exhibiting symptoms of respiratory illness.
The department said it is closely monitoring the situation and has put necessary precautionary measures in place.
The public has been advised to remain vigilant and report any unusual bird deaths or symptoms promptly, officials added.
Avian influenza (H5N1) is a subtype of the influenza virus that infects birds and mammals, including humans in rare instances, according to the World Health Organisation. Human cases reported so far have been mostly linked to close contact with infected birds or other animals, or with contaminated environments.
