The interest rate hike that Japan effected on July 14, after six years of zero rates of interest, did not create the buzz it should have. Apart from the fact that the hike was as expected and discounted by markets, geopolitical developments in North Korea and Israel overwhelmed everything else. The last time Japan increased interest rates in August 2000, the subsequent tech meltdown meant a quick retreat to zero. Moving away from zero does bring Japan back into the league in terms active central banking, and relief that several years of recession could indeed be over for the world’s second largest economy.

The signs of revival have been strong for a while — unemployment is at an eight-year low; consumer prices have increased seven months in a row, the fastest in eight years; business confidence is higher as the Tankan sentiment indicators testify; and GDP growth rates have stayed above 3.5% in the last two quarters.

It is only the context in which this much delayed revival of Japan is happening that causes concern. There is a heightened sense of anxiety in the world today, with fears of inflation, slower growth and increased market volatility occupying centre stage. Japan’s revival does not create a sense of relief and balance but underscores what seems to be an exaggerated level of global economic dependence.

There is a certain obsession with inflation that Central Bankers have exhibited in the recent past. The persistence of the US Fed to raise rates beyond the much expected 5%, and the quick rate hikes sent out by the European Central Bank, have happened on the premise of controlling inflationary tendencies in an expanding economy. Back home as well, Dr. Reddy never fails to remind us how inflationary tendencies require pre-emptive strategies. It would then seem that Central bankers are supporting a well-orchestrated shift from recession to growth, keeping inflation in check all the while, by increasing rates gradually.

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