Japanese economy turns a corner

Chris Farrell

TEXT OF INTERVIEW

SCOTT JAGOW: Tomorrow, the Bank of Japan is expected to raise its benchmark interest rate for the first time in six years. As you know, in this country, the Federal Reserve's been raising rates for some time now. But why should we care what the Bank of Japan does? Our economics correspondent Chris Farrell is with us. Make me care, Chris.

CHRIS FARRELL: Alright. It's the end of ZERP. It's the end of ZERP. Zero Interest Rate Policy. And this is why Americans should care that ZERP is over: The reason why the Bank of Japan, its central bank, followed a policy of zero interest rates was to combat deflation and economic weakness. Japan is the world's second largest economy. It has been stagnating for the past 15 years. It hasn't really been contributing much to the global economy. Now what we're seeing is the first genuine the first signs that the Japanese economy is leaving behind its deflationary stagnation and this is good for the global economy that Japan is once again a vibrant member of the global economy.

SCOTT JAGOW: OK I'm starting to card a little bit more.

CHRIS FARRELL: Alright, next question.

SCOTT JAGOW: Well, the Fed has boosted interest rates 17 times in a row now, you know where has the Bank of Japan been up to this point?

CHRIS FARRELL: They've been following their ZERP you know and they haven't been doing anything. The expectation is that the Bank of Japan on Friday will raise its benchmark interest rate by a quarter point. And if you look at the futures market, the futures market is suggesting that over the following year, the Bank of Japan will raise its benchmark interest rate to about 1 percent. So we're not talking big numbers but it is a turning point. This is just a sign that Japan is growing, the global economy is strong, so the Japanese central bank decided, hey let's join the party

SCOTT JAGOW: Well, the Fed raising its interest rate has an obvious and immediate impact on the average America in terms of at least fallout with mortgage rates and all that other stuff. Is there any fallout for the average American from a hike in Japan's interest rate?

CHRIS FARRELL: There is sort of a fallout. Overall this is a good sign because the fear that you and I would have, and a lot of people who listen to this broadcast: It's the Federal Reserve, I mean has raised it's raised its benchmark interest rate 17, 18, 19 times, is it going to send us into recession? This is a good offsetting force to have Japan grow more strongly. Now there's one other aspect, the American as an investor: Will more money go overseas, be attracted to the Japanese market, be attracted to some of the international markets rather than the US?

SCOTT JAGOW: Chris Farrell is the Marketplace Economics Correspondent and our expert on ZERP. In Los Angeles, I'm Scott Jagow. Thanks for joining us and have a great day.

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