Why has Japan raised the cost of borrowing to its highest level in 17 years?

CGTN Europe interviewed Dr Seijiro Takeshita, Professor, School of Management and Information, University of Shizuoka

Transcript

00:00Now, Dr. Seijio Takeshita is a professor at the University of Shizuoka's School of Management and Information.

00:06He gave us his thoughts about how the rate hike would impact the Japanese economy.

00:12Well, I would say this is more like normalization of the rates. People talk about rate rise,

00:17but this is really a normalization. And from that context, yes, we are getting back to

00:21normalized state. But that said, of course, there's quite a lot of external ambiguity factors,

00:27particularly from the United States, the new president. So this is something that we all

00:32have to watch very carefully. And of course, BOJ itself is also watching very carefully,

00:36because that basically could evoke so many of the unexpected type of volatility.

00:45Deflation, a major ongoing issue for Japan. Can Japan see the back of it now?

00:50Well, yes, we've already achieved what the BOJ saw as a goal of 2% on CPI. And

00:59we are expected to see continuous rise in the wage side and inflation, because in our case,

01:06it's cost push inflation. It's not as serious as demand pull inflation that you see in the United

01:10States or United Kingdom. So people do feel that it's fairly under control. I have a bit of doubts

01:17about that. But, you know, that's one of the reasons why BOJ have decided to normalize the

01:23rates. And from that perspective, yes, we are coming back on the normal track.

01:29And with this rate decision, what does it mean for ordinary businesses,

01:33ordinary consumers in Japan? Well, actually, it's, I would say,

01:39a pretty negative news from MNEs. Well, BOJ say more like mid-sized, small-sized Japanese

01:47companies. And the reason for this is that they're very much relying on indirect financing,

01:52in other words, financing from the banks. And these medium and small-sized enterprises,

01:58for that reason, will have more burden on the interest side. And also, they're much

02:03reliant on the borrowing. So, you know, from that perspective, it would be negative for these

02:10companies. But again, this is normalization. You know, one would expect that, well, you know,

02:17it would basically decrease the, I would say, the rates between the United States and Japan,

02:26therefore, inducing, you know, stronger yen. Thus, we'll be able to avoid, you know, further

02:33pressure from inflation, which I think is a very optimistic scenario. And my reason for this is

02:40because I don't think the interest rate gap will be lessened as many people expect, particularly

02:46as we are facing upper house election in Japan in the summertime. And also, due to the fact that

02:55there's a spying, a lot of mid-sized and small enterprises politically would not like the rate

03:02price. And how do you think this move aligns Japan's central bank now with other major central

03:07banks? I don't think the Bank of Japan has the same maneuverability or capability as the Fed

03:13or the European Central Bank. They don't have the deep pocket as many people think.

03:19Considering the fact that the current, you know, account has reached well over 600 trillion yen,

03:24raising interest rate itself is shooting in our own foot. And basically, from many of the

03:30political and economic reasons, it's very difficult for them to really maneuver, you know, their

03:38policies.