The Bank of Japan has decided to raise interest rates – from 0.25 to 0.5%. This could weaken the yen, thereby damaging the country’s export-led recovery. For the petrochemical players, the benefits of a 21-year low yen have been offset by the increased cost of importing naphtha.
The bank is also banking on last summer’s consumer spending slump being only temporary, meaning that it can afford a rate rise needed to both strengthen the yen and slow what’s also to being also an industrial investment-led recovery (to provide all the products for booming exports).
But what if the consumer spending slump is long term? If so, a rate rise is hardly the right medicine.