Japan has raised its key interest rate from minus 0.1% to between 0% and 0.1%, ending a negative rate policy that was adopted in 2016. So why was the negative rate policy adopted, and what prompted the latest shift in policy from negative to positive? Also, what are the broader implications of this monetary policy shift? Hello and welcome to Tuesday's edition of Issues and Insiders. I'm Minan. Today we touch upon Tokyo's recent decision to raise its benchmark interest rate for the first time since 2007 and to end a negative rate policy adopted back in the year 2016. For more, I have Professor Kim San at Iwa Women's University live on the line. Professor Kim, welcome. Thank you for having me today. I also have Professor SRI Shirai at Ko University live on the line as well. Professor Shirai, it's a pleasure. Thank you very much. Right, Professor Shirai, let's begin with some background information regarding the Bank of Japan's monetary policy first and why did Japan adopt a negative monetary

policy back in the year 2016, and what was the response from pundits back then to this move. Actually, I was a board member at Bank of Japan in those days, and I voted against this decision to introduce negative interest rate. I think my understanding is that in those days, there was a heightened Global uncertainties because since the middle of 2015, there was a China's depreciation of their currency and the Shar for in the Chinese stock prices, and there was also uncertainty in a German commercial Banks. So then, Yen started to appreciate, and Yen started to appreciate below 120 against US dollars. I think that kind of led to the decision to introduce additional monetary eing in 2016, right? I see. And Professor Kim, for some broader perspective, I believe Japan was not actually the first nation to adopt a negative rate policy, right? That's correct. Actually, people are not familiar with negative interest rate because it means that you pay something to Banks when you deposit money at the banks, but as you said

several central banks had implemented negative interest rate as part of their response to uh economic conditions in 21st century. For example, uh Switzerland Central Bank introduced negative interest rate in December 2014 to counteract the appreciation of Swiss Fran. Also, Swed Swedish Central Bank, Swedia RIS Bank, also implemented negative interest rates in uh uh 2015 to stimulate uh economic growth and combat deflationary pressures. But it should be noted that among the major economies, uh Japan has been the only example of negative interest rate by Central Bank. Uh Bank of Japan's negative interest rate policy from two 2001, as far as I know, gave an important lesson to other central banks like US Federal Reserve when they were uh about to adopt uh zero interest rate policy after outbreak of global financial crisis in 208 to most of Western major Central Bank. Therefore, zero interest rate was something unprecedented policy, and Japan's long experiences, what uh zero and negative interest rate policy gave them Assurance on implementation of their interest rate interest rate policy after 2008, uh Global financial.

crisis, right. I see back in Japan then Professor Shirai. What appears to have prompted monetary policy makers that to raise their interest rates for the first time, I believe, leave in some two decades. And how do you respond to this move? So Japan Bank of Japan has been doing this unconventional monetary easing, even before negative interest rate, especially over this 10 years under the previous governor CA. And I think people kind of fed up with this idea of maintaining low interest rate, and the banks and a lot of Market participant, they like to have a more, you know, interest volatility because they can make more money and you know more businesses and financial asset development become possible. So I think when you Governor came from whether came last April, I think people anti anticipated then there will be policy change. And I think this time BOJ, you know, they never say it, but they always worry about the side effect imposed by this negative interest rate on Commercial Banks so.

maybe they thought this is opportunity for them to remove uh this negative interest rate uh while inflation is above 2% right. And that being said, Professor Kim, what look to be some of the broader implications of this move by the Bank of Japan for perhaps Korea? Well, thanks to higher interest rate in Japan, Yen will be more expensive, first of all, so to General Korean people, it means that travel to Japan will be more more expensive, because Japan's end will be more appreciated. After the end of Co pandemic, Japan has been uh number one foreign destination to many Korean people. Last year, a quarter of foreign visitors to Japan was Korean, and there are many, I think, reasons for Korean people to visit Japan, like attractive sseeing spot in Japan, but another main reason should be a huge depreciation of Yen against Korean one in the last two years, that made uh travel to Japan the most cost effective against their Joy of travel. And higher interest rate in Japan and appreciation of Yen together will help to increase Korean

export because Korean one will be slightly depreciated against US Dollars and Yen. Since the two countries' products between Japan and Korea are competing in Global Market like Automobiles and ships, cheaper Korean one or depreciated Korean one generated by higher interest rate in Japan would add J up Korean export for this year, right? And Professor Shai, how does this later shift in monetary policy by the Bank of Japan look to affect the ordinary Japanese household as well as these small and midsize businesses there? So far, the impact is really small because the B policy made a fundamental changes, but you know on the short term interest rate just a tiny increase from small negative to plus 0.07. So it's very tiny increase so far. You know, there was a very small increase in deposit rate, but you know just around 0.011%, so nothing nearly change. And so far, Commercial Bank hasn't raised their lending date, so remain at 0.3%. So overall, the Japanese interest

rate remain really low, and I think the main reason is because BoJ, you know, didn't want to uh increase the long-term interest rate a lot, so they H continue to buy lots of JGB about the same amount, uh monthly amount. So uh, that's why it didn't really make a big change on interest rate, but at this moment like this but who knows, you know, uh some Market participants have a different view about the Japanese growing debt, you know, and uh they may have a different sentiment and the movement may happen, but so far the impact on the interest rate is very limited, right Professor Shai? Broadly speaking, how do you assess the state of Japan's economy and what perhaps needs to be done to perhaps ensure stability? Japanese economy is very weak, so last year, uh, we had this real GDP growth of 1.9%, looks great, uh, but uh, you know, if you look at the consumption over this past three quarters, uh, we had a declining real consumption, uh, mainly because of this High imported prices.

know like Professor mentioned that foreigners enjoy you know cheap uh goods and services in Japan, but uh all Japanese are suffering, and we all feel wor off, you know, it's everything become so expensive, food prices, and so on, so consumption is dropping, and our wages do not catch up, uh, with inflation, so real wages are dropping, so economy is really, uh, weak and sluggish, uh, so, uh, how can we change, uh, it's a, you know, it's an aging Society, so, you know, uh, our population, uh, Senior People account for 30%, and so if we look at the real consumption over 25 years, uh, the annual increase in real consumption was just 0.6%, so almost stagnant, uh, consumption economy, so from this P perspective also very difficult for boj, uh, to maintain 2% in a stable manner based on this demand-driven, you know, uh, wage-price viral cycle that that hasn't happened yet, right? I see Professor Kim, Professor Shirai just mentioned Japan's aging society, and that is not simply Japanese problem it's also a

reality here in South Korea. In fact, there's been quite a bit of concern shared about Korea's workforce starting in the year 2028. I believe Professor Kim do touch upon these concerns for us and what are your suggestions to tackling these concerns. Well, I'm glad that you raised this point related to rapid Korean aging situation. Sunny Korea will begin to see shrinkage in both its workforce and its economically active population in 2028 as a result of its low fertility rate and rapidly aging demographics among the OECD member countries. These members are relatively rich countries. Japan is the oldest society in terms of the relative size of old people or over 65 years old. At the same time, Korea is the fastest aging society among OECD member countries. So as a result, what we know for sure is that Korea will be the number one economy and Japan will be number two aging society by 2045. So this fast population structure change dismantles the basis of the Korean economy and it further

generates more instability in Korean economy. Uh, it looks that, uh, it is not possible to increase young population in the short run because, uh, it is related to, uh, so many intertwined social problems in South Korea. The only way to avoid shortages of worker is accepting more immigrants from abroad and utilizing more female workers, so there needs to be more, uh, flexible and wider immigration policy and female-friendly labor market to, uh, to maintain international, uh, manufacturing and industry competitiveness in the future, right? And expanding on what Professor Kim has just mentioned about coming up with more female-friendly policies in the workforce, Professor Shir, I understand Japan has been seeking to bolster its shrinking workforce by, uh, having implementing policies that is targeting, uh, its female population. What more can you share with us? Yeah, so we started to see a lot of female, uh, workers, you know, uh, taking a, you know, high-ranking position, but still very limited. I, I think part of the reason is that still, um, have to take care of children and the elderly people. Remember in aging society, somebody have

to take care of ID parents so woman tends to do it so still this balancing this uh you know uh home uh you know um uh taking care of parents between men woman are not equally shared and uh uh so that is a problem and also uh company have to to more uh find a way uh to you know promote more female uh workers uh you know in a more flexible working environment and the still women have to work at UH at the companies so uh you know um um uh online uh working enironment is not uh fully implemented professor shirai professor Kim had mentioned the idea of opening doors to immigration as one way of uh of boosting the workforce is this a policy uh proposal that perhaps Japan is considering in the long run so we started to see a growing number of foreign workers in Tokyo I see so many foreigners living you know in my apartment and everywhere so certainly we started to see an increasing number of foreign workers but I guess eventually uh government have to do a bit more uh

to accept foreign workers and together with their families more permanent basis uh that I think Japan hasn't done in a drastic way. And speaking about permanent uh migration, Professor Kim, could permanent migration be a tangible solution for Korea's shrinking and aging population? Do you think uh yes it could be, but uh it should be pointed out that accepting foreign workers in a larger scale uh causes unexpected social unrest according to experiences of other countries. For example, uh recently uh Sweden is experiencing a serious social conflicts after having huge workers from from Middle East countries. And personally, I don't think that the uh Korean people in general are emotionally ready for this huge influ of foreign workers, so Korean government should be explaining the purpose of accepting foreign workers to uh citizens for gaining agreements from people. Also, as we talked about uh Korean females labor market participation rate is about 55%, and it is only less than 80% of males labor market par participation rate. Actually, Korean females labor market participation rate is simply the lowest among OCD member countries, which is sad. So there is a

large room for having more female workers in Korea, and we know that it does not come for free. Lots of inefficiencies and obstacles related to female workers working in Korean Society should be lessened through government policy and social movements, right for sure to bolster our Workforce then. And speaking about the shrinking Workforce, Professor Shai Japan like ker, it's also facing a very dismal birth rate, and that being said, What policies are in place there in Japan to tackle this social dilemma so, working age populations between 15 year old and the 64 years old are already dropping since 1995, so you know, so what happen that if you look at the number of employed workers, the number is not dropping, so it means the Gap was offset by increasing number of senior pensioners, they take part-time job, and also a female housewife, and the Japanese government introduced a very interesting pension system, so if people postpone the receival of the

pension, and they work longer, and then they can get a more pension in the future. So, during their working time, the government does not need to pay pensions, so they can save those money, right? So, that is one proposal. Then, alright, well, that's all the time we have for this discussion. Professor Shirai over in Japan, thank you so much for your time and your thoughts. And Professor Kim here in Seoul, thank you very much for your insights. Thank you very much. Thank you. Right, well, on that note, we say goodbye. We turn same time tomorrow, that is Wednesday, so do join us. [Music] [Music] Then

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