Japan Ends Era Of Expansionary Policy, India May Witness Ripple Effects | WION News
For the first time in decades, the Bank of Japan has raised its key interest rate to 75% which is the highest since 1995, sending ripples through global markets and putting fresh pressure on the yen. At its final policy meeting of the year, the Bank of Japan increased its benchmark interest rate by 25 basis points, lifting it to 75%. This marks a turn in Japan’s expansionary monetary policy after a very long time. Since the 1990s, the Bank of Japan kept interest rates extremely low to spur spending and manage a national debt nearly three times the size of its economy. An aging, shrinking population dragged growth and fueled deflation, limiting investment despite cheap credit. To counter this, in 2013, the Bank of Japan launched aggressive big bazooka easing, slashing rates, and buying massive amounts of bonds. The rates since then have been kept near or below zero. The Bank of Japan only began tightening in 2024, its first hike in 17 years to fight chronic deflation. Officials described this move as necessary to keep pace with inflation that has stayed above the targeted and to normalize monetary settings. Persistent price pressures driven by higher import costs and slower domestic demand have all pushed consumer inflation above the bank’s 2% target for 44 months in a row. While business confidence in Japan has hit a year high in the three months ending December, the situation is expected to get worse in the next 3 months due to the impact of higher American tariffs and soft consumption. On top of that, the Japanese yen was one of the worst performing major currency against the US dollar in 2025. Now, this combination gave policy makers the confidence to act. Bank of Japan Governor Kazua has repeatedly signaled that Japan is shifting to a tighter monetary policy. The rate hike carries broad implications for Japan’s economy. The yen, which was fragile and volatile ahead of the decision, strengthened slightly after the announcement. A stronger yen could cut import costs and the tighter policy could help Bank of Japan to better anchor inflation expectations and avoid entrenched price pressures that could erode incomes. Japan’s policy policy shift, remember, could have several knock-on effects for India as well. A hawkish Bank of Japan can strengthen the yen and alter global trade dynamics. Japan is also a key partner for India in trade, tech and infrastructure financing and a slowdown due to tighter financial conditions in Japan could temper capital flows and crossber investment appetite. This move could also reduce foreign institutional demand for Indian assets in the short term as Japan might come up as a better option for investors. Japan’s rate decision signals a new chapter for the world’s third largest economy, balancing inflation control with growth risks.
Japan ending its era of ultra-loose monetary policy and rising interest rates signals major shifts, potentially causing capital outflows from emerging markets like India as yen-funded investments unravel (carry trade unwinding), leading to Indian market volatility, currency pressure (weaker rupee), and higher borrowing costs, though India’s strong fundamentals could offer some support, impacting global liquidity and investor sentiment.
#japan #inflation #india #wion
About Channel:
WION The World is One News examines global issues with in-depth analysis. We provide much more than the news of the day. Our aim is to empower people to explore their world. With our Global headquarters in New Delhi, we bring you news on the hour, by the hour. We deliver information that is not biased. We are journalists who are neutral to the core and non-partisan when it comes to world politics. People are tired of biased reportage and we stand for a globalized united world. So for us, the World is truly One.
Please keep discussions on this channel clean and respectful and refrain from using racist or sexist slurs and personal insults.
Subscribe to our channel at https://goo.gl/JfY3NI
Check out our website: http://www.wionews.com
Join our WhatsApp Channel: https://bit.ly/455YOQ0
Connect with us on our social media handles:
Facebook: https://www.facebook.com/WIONews
Twitter: https://twitter.com/WIONews
Instagram: https://www.instagram.com/wionews/
Follow us on Google News for the latest updates
Zee News:- https://bit.ly/2Ac5G60
Zee Business:- https://bit.ly/36vI2xa
DNA India:- https://bit.ly/2ZDuLRY
WION: https://bit.ly/3gnDb5J
Zee News Apps: https://bit.ly/ZeeNewsApps