BOJ’s Bold Move
World’s last central bank unwinds ultra-loose monetary policy after decades of deflation.
The Bank of Japan has ended an era of negative interest rates, raising borrowing costs for the first time since 2007. The move marks a historic shift as Japan puts decades of deflation behind it.
The BoJ governor, Kazuo Ueda, abandoned easing measures to stimulate Asia’s most advanced economy. Following a 7-2 majority vote, the BoJ will guide the overnight interest rate to remain in a range of about zero to 0.1%, making it the last central bank to end the use of negative rates as a monetary policy tool.
The Japanese Bank of Japan (BoJ) has implemented negative interest rates to encourage lending and contain risks of a global economic slowdown.
This policy is expected to trigger shifts in global investment flows as domestic yields become more attractive to Japanese investors. The bank’s policies have been central to ensuring mild inflation, with workers at some of Japan’s largest companies receiving their biggest pay rise since 1991.
More companies are passing inflation costs to consumers, and labor shortages are contributing to higher wages. Investors have grown more confident in the economy’s prospects, with the Nikkei 225 stock index surpassing its 34-year high in February.
The Japanese Bank of Japan (BoJ) has returned to positive interest rates, but officials do not anticipate more increases in inflation.
The rise in imported energy and food prices has slowed core inflation for the third consecutive month. The BoJ expects accommodative financial conditions to be maintained for the time being.
The central bank removed its yield curve controls, a policy introduced in 2016 to reinforce monetary easing measures by capping the yields of 10-year Japanese government bonds.
The Japanese government will maintain its policy of buying ¥6tn ($40bn) a month in Japanese government bonds, despite sluggish household consumption.
However, it will discontinue purchases of exchange-traded funds and Japanese real estate investment trusts.
The BoJ will apply an interest rate of 0.1% to deposits held with the central bank, removing a three-tier system of borrowing costs to limit the negative rate policy’s impact on commercial banks’ earnings.
Economists are divided on the extent to which the BoJ will scrap other measures, such as yield curve control and ETF purchases.
Sayuri Shirai, a former BoJ board member who opposed the introduction of negative interest rates in 2016, believes that the BoJ had only one chance to act due to unfavorable economic conditions.
She credits Ueda for his bold decision, but two BoJ board members argued that it should have avoided removing both negative interest rates and yield curve controls until a more solid “virtuous cycle” between wages and prices was established.
The yen edged higher after the announcement, but was down against the US dollar.
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The Japanese government will maintain its policy of buying ¥6tn ($40bn) a month in Japanese government bonds, despite sluggish household consumption.
However, it will discontinue purchases of exchange-traded funds and Japanese real estate investment trusts.
The BoJ will apply an interest rate of 0.1% to deposits held with the central bank, removing a three-tier system of borrowing costs to limit the negative rate policy’s impact on commercial banks’ earnings.
Economists are divided on the extent to which the BoJ will scrap other measures, such as yield curve control and ETF purchases.The Japanese government will maintain its policy of buying ¥6tn ($40bn) a month in Japanese government bonds, despite sluggish household consumption
However, it will discontinue purchases of exchange-traded funds and Japanese real estate investment trusts.
The BoJ will apply an interest rate of 0.1% to deposits held with the central bank, removing a three-tier system of borrowing costs to limit the negative rate policy’s impact on commercial banks’ earnings.
Economists are divided on the extent to which the BoJ will scrap other measures, such as yield curve control and ETF purchases.
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