Japan braces for impact of historic monetary shift

STORY: Japan’s central bank raised interest rates this week for the first time in 17 years.

The move is largely symbolic as rates remain near zero.

But it’s a clear signal that something has arrived that Japan hasn’t seen in decades: a world where it will cost more to borrow money.

Businesses and everyday people are bracing for the impact of these higher borrowing costs.

That includes Satoaki Kanoh, the president of Shinshi Co., which makes things out of plastic.

His company wants to replace ageing machinery in its two factories.

And for that, he would need to borrow money.

[Satoaki Kanoh, President of Shinshi Co]

“If we were to replace one machine a year, we’d have to take out loans, and that would really add up and become a huge burden. Of course the higher the interest rate, the bigger the amount we’d have to pay back.”

However, Haruka Yoda, a 29-year-old IT engineer, is more upbeat.

He’s a first-time homebuyer, and he’s just borrowed money for a house with his wife and one-month-old baby.

[Haruka Yoda, IT engineer]

“I was a little bit worried when I first heard the news that they were lifting the negative interest rate, but after looking into it myself I feel hopeful that they won’t move much, and even if interest rates rise significantly our salaries might also go up and we won’t suffer much after all.”

While some of Japan’s biggest companies like Toyota are now handing out some of the largest pay rises in decades, it’s less clear whether wage hikes will trickle down to smaller firms as the government hopes.

Small-and-medium sized companies account for a whopping 99.7% of all enterprises and about 70% of the country’s workforce.

For some of them with already razor-thin margins, any new interest paid may eat into what little they pull in.

A Reuters survey out Thursday showed that 60% of Japanese firms expect rates to rise again to 0.25% by the end of the year.

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