Economic Observer reporter Hu Yanming Intern reporter Li Jiayi "The Bank of Japan is going to raise interest rates!" At noon on March 19th, Lin Bing, who was working in Yokohama, Japan, received a message from her domestic friends. Her heart was shocked, and her first reaction was to worry about whether the mortgage would be affected. Because when she signed a loan contract with the bank a few years ago, she chose to change the interest rate.
The Bank of Japan’s interest rate hike is regarded as a historic change. On March 19th, the Bank of Japan announced that it would raise interest rates by 10 basis points, raising the benchmark interest rate from -0.1% to 0-0.1%. This was the first time that the Bank of Japan raised interest rates in 17 years, ending the negative interest rate policy that lasted for 8 years.
This rate hike by the Bank of Japan is not sudden, but has been brewing for a long time. In the past many years, the Bank of Japan has continued its large-scale stimulus policy and ultra-low interest rate policy, hoping to boost the economy. Since 2022, Japan’s economy has undergone a series of positive changes, which seems to be coming out of the shadow of deflation. Many viewpoints believe that it is time for Japan to withdraw from the "ultra-loose policy".
When to withdraw from negative interest rates, the Bank of Japan seems to be concerned about whether a virtuous circle has been established between wages and prices.
At the end of 2022, Goldman Sachs Group and Nomura Securities, Japan’s largest securities institution, "fought against Taiwan" from a distance as to whether the Bank of Japan’s monetary policy turned. NaohikoBaba, Japan’s chief economist at Goldman Sachs Group, said in a research report that the possibility of the Bank of Japan abandoning the negative interest rate policy has increased; KyoheiMorita, chief economist of Nomura Securities, pointed out in the report that the policy interest rate of the Bank of Japan is expected to remain unchanged in 2023.
Since 2023, the Bank of Japan has repeatedly fine-tuned the ultra-loose monetary policy, and when to end negative interest rates continues to attract the attention of global financial markets. To be sure, 2024 will be a year of great changes in Japan’s macro and micro structures.
In the past two years, Shanshan, who works in a real estate brokerage company, has opened the Yahoo news interface on TV every once in a while, and she can see reports about the Bank of Japan’s interest rate hike. The comments below these news have been very enthusiastic.
A few days before the decision to raise interest rates was officially announced, she saw a news story about Japan’s possible interest rate hike on the homepage of Yahoo News in Japan, and there was a vote after the article. About 14,000 people participated in the voting: about 50% of the voters think that raising interest rates is a good thing and valuable; 22% think that raising interest rates is not good; About 28% don’t evaluate. "This price should be stable, and finally it will not continue to soar. This is the psychology." Shanshan summed up the feelings of friends around her about raising interest rates.
Will prices stabilize if interest rates are raised?
Shanshan, who lived in Japan in the second half of 2022, felt that she was catching up with the wave of price "take-off".
In 2019, she traveled to Japan several times. At that time, the price of a box of eggs was about 100 yen (usually 10 eggs, about 5 yuan RMB). Soon after she moved to Japan, the price of a box of eggs had risen to around 200 yen.
Shanshan’s personal experience is basically consistent with the official data. According to data released by the Ministry of Internal Affairs and Communications of Japan, Japan’s core consumer price index (CPI) in fiscal year 2022 (April 2022 to March 2023) increased by 3.0% over the previous fiscal year, the largest increase since fiscal year 1981. In 2023, Japan’s CPI rose by 3% year-on-year.
Shanshan observed that the Japanese locals also reacted greatly to the price increase. They felt that it had gone up too much. Why did the price of eggs go up so high and so much personal income tax was levied?
This year is the tenth year since Lin Bing came to Japan, and she feels that prices are rising little by little. In recent days, Lin Bing collected and sorted out a magazine he often bought, and found that the price of this magazine was 550 yen in 2019, 590 yen in the second half of 2021, 610 yen in 2022, and now it sells 640 yen.
Japanese residents who have been in deflation for a long time have found that the price level has risen unconsciously.
Compared with rising prices, people are more concerned about whether wage income can rise. Since the bursting of Japan’s economic bubble in 1990, prices, wages and house prices have all stagnated and fallen into deflation. It was not until the last two years, under a series of stimulus policies, that the wage level in Japan began to increase steadily.
Rengo, Japan’s largest trade union organization, announced the results of the first round of "Spring Fight" (spring salary negotiation) on March 15th, 2024. The salary increase (including salary increase based on seniority) reached 5.28%, the largest increase since 1991, higher than 3.8% in 2023.
Many large Japanese companies also announced their salary increase plans around the "Spring Fight". On March 11th, ANA responded to the trade union that it would increase the monthly basic salary by 11,000 yen through this spring’s activities. If an agreement is reached, this will be the highest increase since 1991. Large Japanese companies such as Toyota Motor Corporation and Nissan Motor Corporation put forward the biggest salary increase in decades in the annual salary negotiation on March 13th.
On March 21st, Sony announced that it would raise the salary level of employees from FY 2024. For full-time employees at the director level, the maximum monthly increase is more than 50,000 yen, and the wage increase level is the same as that in 2023. The starting salary of new employees will also be increased by 10 thousand yen on the current basis.
Two years ago, Japan’s game industry raised wages for new employees (that is, fresh graduates) and raised the basic salary. Not only the new employees, but also the salaries of the old employees have increased steadily. Lin Bing roughly calculated that after joining the company, it will increase by about 10% every year.
Japan’s policy goal is to achieve a virtuous circle between wages and rising prices. In an interview with this newspaper, Nobuyichi Murao, chief investment officer of Nomura Asset Management Japan Initiative Stock, said that if the wage income of employees in the company can continue to rise, another kind of inflation will be formed, because higher income can buy more things, and enterprises can sell more things, or the price of selling things can be raised, which forms a benign inflation mechanism. If this mechanism can continue to develop, the Bank of Japan will change its loose monetary policy.
At the press conference on monetary policy held on the afternoon of March 19, 2024, Ueda Kazuo said that loose conditions will strongly support the economy and prices. "If necessary, we will consider all-round loose options, including the means used in the past." He also said that the pace of further interest rate hikes depends on the economic and price prospects.
A "visionary" decision to buy a house
The day after the Bank of Japan announced its decision to raise interest rates (March 20th), it happened to be a "red day" (that is, a holiday in Japan). Lin Bing hasn’t had time to consult with the loan bank. How much will this change increase his repayment cost?
In September 2022, Lin Bing bought his first house in Yokohama. After finding her favorite job, she decided to stay here for a long time.
Prior to this, Japanese housing prices had been depressed for a long time.
With the support of parents to help pay the down payment, Lin Bing didn’t consider too many market factors. In mid-2022, Lin Bing began to look at the house after obtaining the qualification of permanent residence in Japan, and it was finalized at the end of September. At that time, the house price was 52 million yen (about 2.48 million yuan), the loan was 36 million yen, and the mortgage was 35 years, and it was about 100,000 yen per month. When signing the loan contract, the annualized interest rate as low as less than 0.3% impressed Bing the most. In her view, this is close to no interest. Moreover, Japan has a tax-free policy for mortgage loans in the first ten years to encourage people to buy houses.
Not long ago, a Japanese friend suddenly praised Lin Bing for his foresight. He bought the house a few years ago, because the house price has risen again recently. This friend took a fancy to a house in Tokyo before, and now the house price has doubled, and he regrets not buying it.
From the relevant data, we can also find that the long-frozen Japanese house prices are warming up.
According to Kyodo News, in 2023, the average house price in the 23rd district of Tokyo, known as the barometer of Japanese house prices, increased by 39.4% over the previous year, reaching 114.83 million yuan (about 5.55 million yuan), setting a new record in 2022.
Shen Jianguang, chief economist of JD.COM Group, observed that the housing prices in Tokyo are overheating, and the myth that the high-end housing prices in downtown Tokyo have doubled in more than a year. For example, a 300-square-meter high-rise apartment in Tiger Gate, Tokyo, was worth more than $10 million in early 2022, but now it has soared to more than $20 million.
Close to interest-free loans, buying a house in Japan may be more cost-effective than renting a house, because the monthly payment may be lower than the rent. But even so, Lin Bing feels that his colleagues around him are not in a hurry to buy a house.
Japanese who have experienced the real estate bubble seem to be less enthusiastic about home ownership. Shanshan’s customers are almost all from Chinese, mostly from the first-tier cities in China, while there are almost no local Japanese buyers.
Most of these China customers buy more than one house, and some will buy several houses at one go. Moreover, the housing price is relatively high, and the total price mostly exceeds 50-70 million yen (about 2.4-3.3 million RMB). This is already a relatively high total price in Japan.
Judging from the company’s business data, Shanshan feels some changes. Company executives stressed that this period is the Japanese Cherry Blossom Festival (from March 15th to April 15th every year) and the May Day holiday coming to China soon, so a large number of China tourists may be welcomed. Employees should take it seriously, sort out the existing and potential customer information, match the housing for customers in advance, and it is best to have relevant plans.
Rising stock market and falling exchange rate
It is not only the Japanese real estate market but also the Japanese stock market that welcomes capital inflows.
Since 2023, the Nikkei 225 index began to climb sharply, reaching a high of 30,000 in May 2023. According to market evaluation, the Japanese stock index recovered its "lost thirty years" in one fell swoop.
On February 22, 2024, the Nikkei 225 index closed at 39,098.68 points. The last high point of the Nikkei index appeared on December 29, 1989. On that day, the Nikkei index closed at 38,915.87. On March 4th this year, the Nikkei 225 index broke through the 40,000-point mark for the first time in history. On March 19th, after the Bank of Japan announced a rate hike, the Nikkei 225 index turned red and returned to above 40,000 points.
Shanshan regrets not buying stocks early, but she is not sure whether she will "take over" at a high level when entering the market.
The steady rise of Japanese stocks is inseparable from the expectations of overseas investors on the market. Buffett’s action in the Japanese market has attracted the attention of the whole world. In 2020, Berkshire led by Buffett entered the Japanese market and held 5% shares of five major trading companies; In April 2023, Buffett visited Japan again after a lapse of 12 years, and announced that he would increase his holdings of five major trading companies, which continued to push up the popularity of the Japanese stock market.
The latest trading trends of various investment departments announced by Tokyo Stock Exchange show that in 2023, overseas investors bought a net amount of 3.1215 trillion yen, which reached a new high since 2013 in the early days of "Abenomics". Previously, overseas investors sold Japanese stocks for two consecutive years and sold 1.8 trillion yen in 2022.
Contrary to the performance of the stock market, the Bank of Japan raised interest rates for the first time in 17 years, but the yen fell instead of rising in the foreign exchange market. On March 19th, the yen depreciated by 1.12%, falling to the lowest level in nearly four months.
When Lin Bing first arrived in Japan in 2014, only 600 yuan could be exchanged for 10,000 yen. Now, he only needs about 480 yuan RMB.
In recent years, the falling exchange rate has caused a large number of European and American tourists to flood into the Japanese market for tourism or consumption. Lin Bing found that friends around him discussed the exchange rate very highly, but rarely discussed raising interest rates. Many local people think that they have been treated unfairly, and their life as a country is getting harder and harder, while foreigners come to travel and buy things cheaper.
After the interest rate hike, the yen fell instead of rising. Shen Jianguang felt that there were reasons for this meeting’s partial attitude, but more reflected the triple worries about the Japanese economy.
He analyzed that, first of all, Japan’s monetary policy is still dovish, and the turn of this monetary policy has lagged behind the trend of economy and inflation. Faced with the trend of economic growth, inflation and asset prices rising in an all-round way, the Bank of Japan is relatively cautious, not optimistic about the economic prospects, and believes that it still needs to improve its growth resilience. Ueda Kazuo said that a loose monetary environment will be maintained for the time being, and if necessary, the Bank of Japan will consider a wide range of policy easing options, including tools used in the past. Japan’s monetary policy has turned relatively passive, and it is expected that the probability of preventive interest rate hikes in the short term is not high.
The second worry is that the market is not confident enough about the endogenous kinetic energy of the Japanese economy, mainly because it is pessimistic about household consumption expenditure. With the rising inflation, the consumption power of ordinary Japanese families is limited. As of January 2024, the household consumption expenditure of two or more people was actually negative for November. In the fourth quarter of 2023, Japan’s private consumption decreased by 0.3% month-on-month, which significantly dragged down the GDP (gross domestic product) of the quarter. With the shift of monetary policy, Japan’s commodity price advantage weakens, and exports may be under pressure. It remains to be seen whether personal consumption can support economic growth between the "Spring Fight" salary increase agreement and the actual salary increase.
The third worry is that Japan’s structural problems, such as aging and declining birthrate, will not change. According to the "population speculation" data of the Japanese Ministry of Internal Affairs and Communications, it is estimated that by 2030, the proportion of the elderly population over 65 will reach 32%, and in 2005, the figure was only 20%. The shortage of labor force is the first dilemma faced by an aging society. At present, the potential labor force (population aged 15 and above) will drop rapidly around the end of 2021, and the job market will face long-term labor shortage pressure.
There are many elderly people in the Tokyo metropolitan area where Lin Bing lives. A few days ago, she asked for leave to go to the hospital on weekdays and found that there were almost no young people in the hospital, all of them were elderly people. Moreover, Lin Bing noticed that the fertility rate of young people in the company is relatively low, and young people with children are a minority.
Economic warming
After living in Japan for ten years, Lin Bing didn’t experience the social atmosphere after the initial bubble economy burst, only occasionally heard a few words from his predecessors.
Last year, Lin Bing’s minister (equivalent to the general manager of the domestic department) asked her if she wanted to go to other developed countries for development. This company has branches in Europe, America, Southeast Asia and other countries and regions. The minister can help recommend her to work in overseas branches.
In his view, Japan is a relatively flat country, and the economic situation has not been very good. When Lin Bing started his career in Japan, he might not feel the atmosphere in which everyone worked hard. However, other countries, such as Singapore, have a booming economy, and going to these places will help her future career.
This minister is in his fifties, approaching retirement age, and has experienced Japan’s "lost thirty years". He told Lin Bing that when he was young, everyone was working hard, passionate and energetic. Now, young people are in a relatively depressed social atmosphere.
In the late 1990s, Japan was mired in deflation. Although the Japanese government has tried many policy tools, it has never seen obvious improvement.
Now, according to various data, the Japanese economy seems to have reached its best period in more than 30 years. In the fourth quarter of 2023, Japan’s GDP returned to the positive growth range of 0.4%, and the economy improved moderately. The nominal growth rate of GDP for the whole year reached 5.7%, the highest point since 1992, and the real growth rate of GDP was 1.9%, which was also a high level in recent years. Corporate profits have maintained rapid growth. Since 2021, the overall profit center of Japanese enterprises has changed from negative to positive.
Has Japan really come out of the 30-year deflation quagmire? Zhao Yaoting, global market strategist in Jing Shun Asia-Pacific (excluding Japan), told the Economic Observer that the Bank of Japan’s decision to gradually normalize monetary policy is a positive development. This normalization may boost market confidence, and the first rate hike in 17 years sends a strong signal that Japan’s economy no longer needs such a high level of support, because its own situation has improved and is expected to continue.
On the weekend of March 16th and 17th, Shanshan’s friends traveled from China to Japan. They walked all the way from Meiji Jingu to Shibuya Station, and the road was crowded with people. Tourist teams from Europe, America, Southeast Asia and other regions gathered in several popular scenic spots in Japan. "It’s ridiculous. Perhaps this time is quite special, it is the cherry blossom festival in Japan, and it is estimated that there will be more people in the next two weeks. " Shanshan said.
According to data released by the Japan Tourism Agency, in 2023, the number of foreign tourists visiting Japan reached 25.066 million, exceeding 20 million again after three years.
Shanshan found that the current crowded scene in Japan is completely different from the previous two years-since last year, customers have to wait for meals in many restaurants, especially near scenic spots; Popular shopping centers need to queue up, and some stores need to limit purchases, make reservations or even draw their shopping qualifications by luck, which seems to be a sight that did not exist before the COVID-19 epidemic. "Consumption is so hot, economic recovery should not be a problem?" Shanshan said.
(At the request of the interviewee, Lin Bing and Shanshan are pseudonyms.)