Hi there! As a result, Japan has served as a proving ground for numerous economic theories ever since World War II concluded.
The central bank of Japan is currently bidding adieu to negative interest rates. Since 2007, they have not increased rates before. This implies that they are doing away with YCC and negative rates.
However, what initially led Japan to take this peculiar economic path? And what will it entail for average people?
Indeed, Japan’s economy was once a true economic giant. It was expanding incredibly fast, nearly overtaking the US to take the top rank. Everyone was spending money back then.
However, the 1980s slump followed. Japan’s economy braked hard, the stock market sank, and real estate prices plummeted. And for ages it remained so. Only a stagnating economy, with no inflation or pay increases.
See, the economy can benefit from a small amount of inflation. It maintains the flow of money. However, Japan was unable to raise its inflation rate to the appropriate level. The Bank of Japan experimented with a variety of strategies, including printing large amounts of money and even dropping interest rates. However, nothing was truly effective.
Then, things began to shift in 2022. At last, inflation reached its goal, but not for the reasons Japan had anticipated. The primary causes of this were rising energy bills and Japan had to follow lawsuit.
So, the Bank of Japan took a significant step on March 19, 2024. They reduced their purchases of ETFs, abandoned yield curve control, and abandoned negative interest rates. Although it may not seem like much, Japan takes great pride in it.
What does this mean going forward for you and me? First of all, mortgage rates will increase. Additionally, the government will have to pay higher interest on its enormous debt. Businesses may also be affected.
However, there is a bright side. It might become more appealing to invest in Japan, and lower import costs could be good news for consumers. Therefore, even though the economic rollercoaster in Japan may be slowing down, it will still be an exciting trip.
