Japan's central bank has continued to raise its interest rate in 2024, reaching levels not seen in over three decades

For many years, Japan kept its interest rates very low. The central bank held rates near zero percent to help the economy grow. But in 2024, everything began to change. The Bank of Japan started raising rates for the first time in a long period.

Interest rates are the cost of borrowing money from banks. When rates are low, people borrow more easily. Businesses invest, and the economy grows faster. However, low rates also cause problems. Prices rise too quickly. This is called inflation. Japan began to see inflation problems, so officials decided action was necessary.

The bank has raised rates several times during 2024. With each increase, the rate climbed higher and higher. By the end of the year, the rate reached a level not seen since the early 1990s. This is a significant milestone for Japan's economic policy. Thirty-one years is a very long time in modern economics.

Why did this happen now? Japan's economy has been changing. Workers' wages have started to increase. Prices in shops have risen faster than before. Energy costs went up around the world. These factors combined to create inflation pressure. The central bank felt pressure to act and protect the value of money.

Raising interest rates has many effects. Borrowing money becomes more expensive for everyone. People think carefully before taking loans. Businesses slow down their expansion plans. Families save more money instead of spending. Stock markets often fall because savings accounts become more attractive. These changes happen slowly across the whole economy.

But higher rates also help control inflation. When money is more expensive to borrow, people spend less. When people spend less, prices stop rising so quickly. Inflation comes down. This is the goal of the central bank's strategy.

Japan's situation is unique in global economics. Most other countries raised rates earlier than Japan. The United States and Europe increased rates in 2022 and 2023. Japan waited longer because its inflation appeared later. Now Japan is catching up to other countries' policies.

Economists watch these changes carefully. Higher rates will change how Japanese families and businesses behave. Some people worry about negative effects. Others support the move as necessary and overdue. The true impact will emerge over months and years.

Inspired by reporting from BBC News.