As long-term interest rates reach 3%, debate is intensifying over the Bank of Japan’s cautious policy management and delayed exit strategy, with the 10-year government bond yield becoming the focal point in discussions about Japan’s future.
Consumers do not feel that the economy is booming, and while debate is advancing over more expansionary fiscal policy, many have warned that distortions from an overheated economy could emerge. Against this backdrop, views are divided over the state of the economy and the direction of price increases, while concerns about a renewed acceleration in inflation are being raised.
Against a backdrop of rising long-term interest rates, the view is gaining ground that the Bank of Japan has fallen behind in raising interest rates. While distortions are emerging, the central bank continues to exercise caution, and some have also argued that monetary policy normalization is currently lagging.
In a new book, former Governor Shirakawa Masaaki (白川方明) points to the increasing difficulty of an exit and identifies factors that have led the central bank to proceed cautiously with interest rate increases. The book presents the view that the scope for raising the policy rate was limited as long-term interest rates rose to 3%.
Against this backdrop, attention is focused on the Bank of Japan’s future policy management and the timing of interest rate increases, raising questions about how Japan should manage its economy in a world after low interest rates.