Think your bank's interest rates are bad? Just take a look at Japan

Customers at the Japanese banking corporation ATM machines of MUFG and Mizuho banks seen in Tokyo.

Budrul Chukrut/SOPA Images/LightRocket/Getty Images

• Three major Japanese banks have hiked interest rates in recent weeks to 0.2% from 0.002%.
• Japan's central bank has adopted a negative interest rate policy since 2016.
• But the market is expecting the BOJ to exit its negative-rate policy next spring.

Major banks in Japan have started raising interest rates on time deposits for savers — to the tune of 0.2%, Bloomberg reported on Thursday.

While the return may seem paltry, it's far better than the near-zero rate that Japanese savers have been getting for years — thanks to the Bank of Japan's, or BOJ's, negative interest rate policy that has been in place since 2016 to simulate its moribund economy.

In the last few weeks, three major Japanese banks — Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group — hiked interest rates on 10-year time deposits 0.2% from 0.002%, per Bloomberg.

In comparison, the average CD rate in the US for a minimum deposit of $10,000 is 1.4% for a 5-year term. The US CD rates have risen this year thanks to the Federal Reserve's decision to hike interest rates with the aim of combating rising inflation.

However, the BOJ has kept its monetary policy ultra-loose with the aim of stimulating growth and inflation.

The divergence between the US and Japan's monetary policies has been causing waves in the foreign exchange market, with the Japanese yen falling to near a 33-year-low against the greenback — although the yen has gained about 3% against the dollar this month on the back of the Fed's rate-hike signals for next year.

Investors are expecting the BOJ to scrap negative interest rates by next spring, so Japanese banks are also anticipating borrowing rates to tick up. In turn, they are starting to attract consumer deposits for cheap funding, per Bloomberg.

Japan's core inflation rate rose 2.7% in October from a year earlier — the 19th straight month price increases are above the BOJ's target level.

However, BOJ Governor Kazuo Ueda cited "extremely high" uncertainty over the economic outlook and signaled a need to see sustainable inflation and wage growth before adjusting monetary policy.

The Japanese economy will continue to face headwinds in 2024, Takahide Kiuchi, an executive economist at Nomura Research and a former BOJ policy board member, told Business Insider.

Kiuchi expects Japan's GDP to expand by 0.6% in 2024 after growing by 1.7% in 2023 as consumption and demand slows after a spike in the first half of this year due to easing COVID-19 restrictions.

"Wage increases will not be able to keep up with the rise in prices, and real wages will continue to decline, suppressing personal consumption," he added.

Kiuchi told Bloomberg TV on Tuesday he expects the BOJ to keep rates in the negative zone until the end of 2024 or even into 2025.

Read the original article on Business Insider

from Business Insider https://ift.tt/Mq3grlm