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.