BOJ raise the policy

2025年01月24日

The Bank of Japan decided to raise the policy interest rate from the current 0.25% to around 0.5% at the monetary policy meeting on the 24th. This decision has raised concerns among economic stakeholders in Hokkaido. For small and medium-sized enterprises (SMEs) already facing a tough business environment due to rising raw material prices and labor shortages, this interest rate hike could be an additional blow.

The number of bankruptcies in Hokkaido has been increasing for three consecutive years, and credit research companies are concerned that "this rate hike could trigger a further increase in bankruptcies." Additionally, local economic organization leaders are increasingly worried about the impact of additional rate hikes on SMEs.

However, there are also bright signs in Hokkaido's economy. The impact of the COVID-19 pandemic is easing, and the recovery of inbound tourism and progress in large-scale construction projects are contributing to economic revitalization. The Bank of Japan's Sapporo branch's December short-term economic survey (Tankan) recorded the business conditions index (DI) at its highest level since August 1991.

On the other hand, the depreciation of the yen, rising raw material prices, and severe

labor shortages remain significant challenges for SMEs. According to a summary by Teikoku Databank (TDB) Sapporo branch and Tokyo Shoko Research (TSR) Hokkaido branch, the number of corporate bankruptcies in Hokkaido in 2024 was 262 for TDB and 280 for TSR, both marking a three-year consecutive increase.

In this context, the concern is the rise in lending rates due to the rate hike. According to TSR Hokkaido branch's October survey, 43.8% of companies in Hokkaido have already experienced an increase in borrowing rates in the past year following the Bank of Japan's rate hike in July. Katsunori Tachibana, head of information at TSR Hokkaido branch, points out that financial institutions are likely to enter full-scale rate hike negotiations, which could make it even more difficult for SMEs to continue their businesses.

Yudai Watanabe, head of information at TDB Sapporo branch, notes that if the interest

rate gap between Japan and the US narrows, the yen could appreciate, which would help suppress import prices. He also points out that SMEs in Hokkaido are currently facing multiple challenges, including rising prices, labor shortages, succession difficulties, and wage increase pressures, and that the rate hike could exacerbate these issues.

Despite this challenging economic environment, there is hope for a brighter future for the regional economy. The recovery of inbound tourism and progress in large-scale construction projects are key factors supporting Hokkaido's economy. By adapting flexibly and aiming for sustainable growth, companies can help the entire region's economy to further develop. By working together, companies and the community can overcome this difficult period and look forward to a brighter future.