The Bank of Japan, at a policy meeting last Friday, lifted its controversial zero-interest rate policy, which was adopted in February last year amid mounting deflationary pressures. The decision is overdue, given that the economy has shown growing signs of recovery in recent months. The good news for depositors is that interest rates are edging up for the first time in 10 years.

Markets have reacted relatively calmly to the much-heralded decision, but the way it was reached has raised questions not only about the Bank of Japan’s independence but also about the principle of political noninterference in monetary policy. It looked as if the zero-rate policy was taken hostage in the battle of wills between the central bank on the one hand and the government and the ruling parties on the other.

Changing or manipulating interest rates is a key function of the central bank. It should be done at the right time under the right conditions. But whether the BOJ observed this basic rule is open to question. In recent months, BOJ Gov. Masaru Hayami repeatedly indicated that an end to the free-money policy was at hand, yet at the previous policy meeting on July 17 the central bank took no action. The reason given was that it was necessary to “wait and see” how the collapse of the department store chain Sogo would affect the nascent economic recovery.

In the runup to that meeting, Prime Minister Yoshiro Mori, Cabinet ministers and Liberal Democratic Party heavyweights all warned against a policy change, arguing that it was “premature.” It is likely that the central bank’s wait-and-see attitude gave the government and the LDP an excuse for “political intervention.” The BOJ should have taken the plunge at the July meeting.

Sogo’s bankruptcy was not the kind of emergency that would spark a full-blown financial panic. Yet leaders of the ruling parties, from the prime minister on down, showed enormous, even emotional concern over the money rates pertaining to daily transactions between banks in the arcane “call market.” Politicians have no business poking their noses into the management of such a specific interest rate.

At that time, overnight interbank rates — interest rates at which banks borrow money from each other for a day to adjust their balances — were pegged at zero. The central bank was trying to scrap that anomalous policy as soon as possible. Mr. Hayami, the policy’s chief opponent, presented his case at meetings of economics ministers and Diet committee sessions — but to no avail. It was reported that he even received veiled warnings of retaliation from those politicians.

It is only natural that politicians, like everybody else, should be concerned about interest rates. With prospects for a solid long-term recovery still uncertain, politicians had their own reasons for opposing an end to the ultra-easy credit policy. But expressing concern about monetary policy is one thing; bringing political pressure to bear on the central bank is another. One plausible explanation for the tug of war between the BOJ and the LDP-led government is that politicians were trying, though in a misguided way, to assert their leadership. The fact is that legislators from both the ruling and opposition parties are keen to play a more active role in policy planning and implementation by snatching the initiative from the bureaucrats. They believe, with good reason, that the bureaucracy stands in the way of reform.

The question is whether politicians are taking, or trying to take, the initiative in the right way. Picking a fight with the central bank is not the right way to demonstrate their clout. If they thought they were doing the right thing in this latest episode, they were wrong. A specific interest-rate issue is best left to the central bank, which knows best how to deal with such things, although the government and political parties are free to express their views.

The Bank of Japan needs to make greater efforts to maintain its independence — which it won relatively recently, in 1998, through revisions to the antiquated Bank of Japan Law. For the central bank, the latest decision is a Pyrrhic victory that has hurt its image as an independent institution. The government, for its part, has aroused doubt about its declared policy of noninterference with the central bank by trying openly to prevent a rise in interest rates.

The next test for the BOJ will come when it raises the official discount rate, the basic interest rate, which has been fixed at a record 0.5 percent over the past 10 years. The timing of that decision is not yet clear. What is clear is that when the time does come, the central bank’s decision-makers will face an even severer test of the bank’s independence.

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