Why Japan’s economy remains a warning to others

livemint.com:

raised interest rates for the first time since 2007, after inflation seemed at last to have become entrenched. Interest on balances held at the bank, previously set at minus 0.1%, will now be plus 0.1%. The central bank, under its relatively new governor, Ueda Kazuo (pictured), also scrapped its policy of yield-curve control, which capped long-term bond yields at 1%.

Having kept monetary policy ultra-loose for years, Japan has now begun to follow the course set by other economies since widespread inflation took hold. It is a remarkable moment. Before 2022 annual inflation had been above 2% for only 12 of the previous 120 months; today it has been above that level for 22 consecutive months.

Japan’s biggest firms recently agreed to increase wages by 5.3%, a level that would have been unthinkable before the global inflation breakout. There is a sense that change is here to stay. Stocks have been booming—the Nikkei 225 recently passed its December 1989 record—and investors are optimistic about the economy.

Yet it would be wrong to conclude that Japan is de-Japanifying. More important than an economy’s nominal attributes such as inflation, headline interest rates and stockmarket growth are its real, structural features. If you look at the fundamentals, even the rise in interest rates is not quite what it seems.

The 2% inflation target which the Bank of Japan believes is now in sight is 1.4 percentage points higher than the average inflation rate over the ten years to the end of 2021. This 1.4-point rise in expected inflation towers over the 0.2-point rise in interest rates, which in real terms have therefore fallen, not risen. Moreover, the bank made clear in its statement on March 19th that it expected to maintain