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After a long period of stagnation, the return of inflation and wage growth is giving the Bank of Japan room to raise interest rates.
Jan. 23, 2025, 10:26 p.m. ET
In a number of ways, Japan’s economy seems to have gone back in time.
Inflation and wage growth are mostly back where they were in the early 1990s, just before the spiral of price deflation and economic stagnation that became known as “the lost decades.”
That prompted the Bank of Japan on Friday to raise interest rates by a quarter point, to 0.5 percent, another step in its pivot away from the ultralow rates officials long used to try to jolt the economy back to life.
Friday’s increase, which brought rates to their highest level since 2008, was the third in just under a year, a pace of policy tightening not seen in Japan since 1989. After raising rates in March and July last year, the Bank of Japan had held steady at recent policy meetings as it waited to see whether the inauguration of President Trump would rattle markets.
As other major central banks move to cut the high interest rates they had used to curb inflation, Japan is, as usual, bucking the trend. After encouraging a period of rising prices, the Bank of Japan is just now raising rates above zero.
Bank of Japan policy rate
Economists say that with the return of inflation and positive interest rates, Japan is starting to resemble a more conventional economy.
