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Is Japan ready for a ‘world with interest?’

A country that has known nothing but easy money for a generation will have to adapt

August 05, 2024 / 09:34 IST
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Japan is in the throes of a chronic labor shortage, and the death of non-productive companies might instead free up resources to do something more useful. (Photo: Jezael Melgoza via Unsplash)

Japan is on the cusp of a brave new world — one where bank deposits yield 0.1% a year.

OK, that might not sound like a revolution. But in a country where an entire generation has grown up knowing nothing but yields near zero, and mortgage rates that seemed to get cheaper by the year, Mitsubishi UFJ Financial Group Inc.’s move to raise what it pays savers is exceptional.

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It followed the shock rate hike by the Bank of Japan, and considering that the megabank slashed its return on deposits to a mere 0.001% in 2016, it’s easier to see why it matters. That shift is just one example of how Japan is stepping into a place many commentators have dubbed the “world with interest.” Anyone under the age of around 40 has no map to navigate this. If the BOJ can stick to its promise and continue to hike — and in view of its history of choosing the worst possible time to raise rates, that’s a big “if.” Many things in the country are about to change.

The question remains: Is Japan really ready for it?