Bank of Japan, in Surprise, Signals a Move Away From Easy Money

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No country in the world holds as much debt as Japan, which has well over $1 trillion in U.S. government treasuries alone. Even the slightest shift to Japan’s low interest rates reverberates well beyond its borders, with the potential to drive up rates globally. So, when the Bank of Japan on Friday loosened its grip on a benchmark government bond, it was big news for investors around the world. The move was the latest signal that the country may revise its longstanding commitment to cheap money, meant to spur Japan’s sluggish economic growth, as rising interest rates abroad have driven up inflation and weakened the yen. Until recently, Japan’s economy, the world’s third largest, has been held back by low prices and low wages. In an announcement that came after a two-day policy meeting, the bank said it would take a more flexible approach to controlling yields on 10-year government bonds, effectively allowing them to slip above the current ceiling of 0.5 percent.