Why Japan’s economy remains a warning to others

Formost of this century it has looked as if the world’s economy was turning Japanese, with low growth, below-target inflation and rock-bottom interest rates. Today the question is how much Japan will come to look like the rest of the world. On March 19th the Bank of Japan for the first time since 2007, after inflation seemed at last to have become entrenched. The interest-rate target for overnight loans, previously between minus 0.1% and 0%, will rise by a tenth of a percentage point. The central bank 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 the record it set in December 1989—and investors are optimistic about the economy.