Global economic policy is at the mercy of Bessent’s to-do list<\/a><\/p>\nGlobal economic policy now seems at the mercy of an exceptionally casual approach to information, scribbled on a notepad, awaiting an update on Scott Bessent’s to-do list.<\/p>\n
Inflation started increasing in 2021 on the back of the COVID-19 pandemic and then the wars in Ukraine and the Middle East, at times edging toward 3 per cent. In 2024, the Bank of Japan began a program of gradual rate rises to “normalise” the economy.<\/p>\n
Professor Fujiwara said “a zero-inflation norm is really tricky” because people got used to nominal prices for things like lunch.<\/p>\n
“The price of lunch didn’t change [from] when I was a university student 30 years ago,” he said.<\/p>\n
“So suddenly we see the increase, so therefore the people are really frustrated.”<\/p>\n
With inflation persisting and Japan’s rates so low, the prevailing market view appears to be that the hikes will continue after today.<\/p>\n
Washington’s watchful eye<\/p>\n
Japan’s central bank will also be keen to try to support the yen, which recently hit a 40-year low against the US dollar, prompting joint yen-buying intervention from the US and Japan.<\/p>\n
US Treasury Secretary Scott Bessent defended the move by saying a stronger yen was “better for American exporters” and meant the Japanese government did “not have to sell US assets”.<\/p>\n
“I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what \u2026 what Japanese policymakers are going to do,” he said last week.<\/p>\n
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The depreciating yen recently sparked an intervention by the Trump administration. (Kyodo via Reuters)<\/p>\n
The US Federal Reserve voted on Wednesday, local time, to raise rates to between 3.75 and four per cent, and the European Central Bank announced an increase last week.<\/p>\n
The depreciated yen is also adding to inflation by increasing the cost of imports.<\/p>\n
The decision about rates has implications outside the country, as traders often borrow cheaply in Japan and invest the money into higher-yielding assets elsewhere.<\/p>\n
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Scott Bessent says a stronger-valued yen is “better for American exporters”. (Reuters: Sam Wolfe)<\/p>\n
Professor Fujiwara, who worked at the Bank of Japan for almost two decades, said the overt pressure to raise rates from the US was “quite unusual”, but he believed the Bank of Japan would have made the decision to raise today’s rate regardless.<\/p>\n
“But if there is further pressure from the United States \u2014 it’s important for the central bank that they are making a decision independently,” he said.<\/p>\n
“They don’t want to have some impression that their decision is influenced by the government or influenced by a foreign government.”<\/p>\n
He said the increase to 1.25 per cent today was “reasonable” and if it had not happened, the Bank of Japan would risk sending the wrong sign to the market.<\/p>\n
Future interest rate rises could be more contentious, in part because Japan’s government debt-to-GDP ratio is above 200 per cent, significantly higher than most advanced economies.<\/p>\n
“Bank of Japan may be confident, but I’m not so sure about whether the current 2 per cent inflation level can persist or not because of the sluggish real-wage developments,” he said.<\/p>\n
“And also, when they increase the interest rate to fight inflation, they need to worry about the impact to the government bond market.”<\/p>\n
The Bank of Japan today said it would continue to “raise the policy interest rate and adjust the degree of monetary easing” in response to economic and price conditions.<\/p>\n
It said it would consider the “timing and pace of these adjustments” while assessing the likelihood of stabilising the underlying inflation rate at about 2 per cent and the “associated risks”.<\/p>\n
More than 100,000 people aged over 100 in Japan<\/p>\n
At Jiz\u014d-d\u014dri, a shopping strip in Tokyo colloquially known as “Granny’s Harujuku” because of its popularity with the older generation, shoppers told the ABC they were feeling the pinch of inflation.<\/p>\n
Yoshikawa san, 69, said she has noticed price rises on everyday items like detergent and food.<\/p>\n
“I can’t get by on my pension alone, so I’m doing part-time work,” she said.<\/p>\n
“It’s all a bit of a mess. The amount I receive just isn’t enough.”<\/p>\n
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Yoshikawa san, 69, says she is now working part-time to survive. (ABC News: Natalie Whiting)<\/p>\n
She is far from alone, with many inside Japan calling for further increases to pension rates to keep up with the cost of living.<\/p>\n
The Japanese government will cut a tax on food for two years from next April to help people, but the decision has sparked concern that it risks creating a budget shortfall.<\/p>\n
The Japanese government is pushing an expansionary fiscal policy \u2014 using public spending and cuts taxes to stimulate economic growth, which would then reduce the debt-to-GDP ratio.<\/p>\n
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There are now more than 100,000 people in Japan aged more than 100 years old. (Reuters: Issei Kato)<\/p>\n
But analysts say its success will hinge on market confidence, and without that, it could trigger increases in long-term interest rates and a weakening of the yen.<\/p>\n
And inflation is not the only fiscal challenge Japan is facing.<\/p>\n
This week Japan reported there are now more than 100,000 people in the country who are more than 100 years old.<\/p>\n
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Shoppers at Tokyo’s Jiz\u014d-d\u014dri shopping strip have told the ABC they are feeling the pinch of inflation. (ABC News: Natalie Whiting)<\/p>\n
The high rate of centurions is a credit to the population’s health, but it also speaks to Japan’s aging society, which will add to the financial pressure the country is facing.<\/p>\n
“What is worrisome in the future is that \u2026 we are an aging society, but we will enter the super-aging society,” Professor Fujiwara said.<\/p>\n
“So eventually, the medical cost and nursing care costs will increase massively.”<\/p>\n
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He said government expenditure would have to increase, but he questioned where the debt could be absorbed by consumers.<\/p>\n
“It’s going to be a very tough situation.”<\/p>\n","protected":false},"excerpt":{"rendered":"Japan was the country that inflation forgot. But after almost 30 years of 0 per cent interest rates,…\n","protected":false},"author":2,"featured_media":896247,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,5693,164,186,5465,5626,941,19430],"class_list":["post-896246","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economics","tag-economy","tag-finance","tag-inflation","tag-interest-rates","tag-japan","tag-rising"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/896246","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=896246"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/896246\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/896247"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=896246"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=896246"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=896246"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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