Weekly Buzz: 🌸 After 8 years, Japan’s back to positive interest rates

29 March 2024

The Bank of Japan (BoJ) announced its first rate hike since 2007 – yes, that’s 17 years ago. With that, the central bank ended its eight-year run of negative interest rates. Let’s take a closer look at this historic move.

What prompted this move?

Japan’s economy has long suffered from deflation, and that hasn’t done it any favours (here’s our previous Simply Finance on deflation). To fight against falling prices, the central bank has held a key short-term interest rate in the negative since 2016, making it cheaper to borrow and spend money. This rate hike finally brings it back into positive territory.

It’s also doing away with its existing ‘yield control’ measure, which caps long-term interest rates. In other words, Japan’s loosening its reins. These policies have sent prices in the right direction, with the central bank predicting that inflation will continue to hover near its 2% target.

And there are more reasons to believe Japanese consumers will carry its economy. For one, unions representing seven million workers agreed to set wages 5.3% higher this March than last, the biggest jump since 1991. That’s more than double the current 2.2% inflation rate, so shoppers should have plenty of cash to splash.

What’s the takeaway here?

All in all, with its fight against deflation shaping up strong, Japan continues to be a bright spot in Asia. And if you’re interested in investing in Japan, you might want to check out our Flexible portfolios – when creating your custom-tailored Flexible portfolio, select ‘Japan’ under ‘Global Equities’ to add direct exposure to the country.

💡 Investors’ Corner: The world's demographics are shifting

By 2050, the world’s population will grow from today’s 8 billion to 9.7 billion. Yet, at the same time, it’s predicted that three-quarters of all countries will struggle to keep their populations stable. What does this all mean for an investor?

Firstly, it’s important to note that birth rates aren’t equal across the board. A majority of future population growth is projected to come from emerging countries, specifically in Asia and sub-Saharan Africa.

Countries with shrinking populations will end up with shrinking workforces and added pressure in the form of pensions. Some developed countries are already grappling with this problem – birth rates in South Korea fell to a record low of 0.72 last year.

The opposite is true when a country’s population increases: a bigger and younger workforce means more productivity, as well as a wider pool of consumers for companies to sell to. That’s something we highlighted as a key factor set to drive India’s long-term growth

These global shifts won’t happen overnight. For a long-term investor, however, it’s important to keep them in mind. A good way to ensure your portfolio ages well: diversify your investment portfolio and spread your assets across a variety of regions.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Negative interest rates

With a negative interest rate, you essentially pay the bank to keep your money safe. Instead of earning interest on money deposited in a bank, you’re paying a rate.

While it might sound counterintuitive, the aim is to boost economic activity. Consumers are pushed to spend more, instead of saving, while banks are incentivised to lend more. This also results in greater demand for goods and services, heating up inflation.

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