Japan braces for life with interest rates after historic change

TOKYO — In the coming years, Satoaki Kanoh needs to replace almost a dozen ageing machines at his Tokyo-based maker of acrylic panels, a major undertaking that he worries will become even more expensive.

"Ideally, I'd like to do one a year. But I don't have that much money," Kanoh said of the customised pieces of machinery that cost around 50 million yen ($445,000) apiece.

"If we have to pay a lot to borrow, we could end up in a really tough spot."

Japan's central bank this week raised interest rates for the first time in 17 years and scrapped its negative rates policy. While the move is more symbolic than anything else — rates remain pinned near zero — it has nonetheless opened the door to something Japan hasn't seen in decades: a world where it will cost more to borrow money.

Now, millions of Japanese, from small business owners like Kanoh to first-time homebuyers, are sizing up how to adapt to higher borrowing costs after the long, lean years of deflation, when prices, wages and the cost of money changed little.

How they cope will have vast implications in an economy where small and medium-sized companies employ some 70 per cent of the workforce and private consumption accounts for more than half of the gross domestic product.

Kanoh worries about the potential pace of rate increases. Too much too quickly and Japan won't be able to adapt, he said.

His company, Shinshi Co, has about 100 million yen in loans now, but that's at a fixed rate.

Even on a smaller loan of about 10 million yen, the difference between three per cent and one per cent would be considerable, with the annual interest payment on three per cent equivalent to an one employee's monthly salary, he said.

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