The Bank of Japan (BOJ) has concluded its negative interest rate policy, marking the first interest rate hike in 17 years. This move signifies a major shift away from the long-standing monetary easing that Japan has pursued over the past decade to combat deflation.
Following a two-day policy meeting, the BOJ's policy board decided to adjust the short-term rate to a range of 0 to 0.1 percent, a slight increase from the previous range of minus 0.1 to 0 percent. The central bank expressed optimism that its target of achieving a stable 2 percent inflation is now within reach.
In its post-meeting statement, the BOJ stated, \"It came into sight that the price stability target of 2 percent would be achieved in a sustainable and stable manner.\" Alongside reverting to positive rates, the BOJ has also ended its yield curve control policy, which involved purchasing large amounts of Japanese government bonds to keep long-term interest rates around zero percent and maintain accommodative financial conditions.
Despite this policy overhaul, the BOJ has pledged to continue buying Japanese government bonds as needed to prevent a rapid increase in interest rates, highlighting the ongoing weakness in the economy as household consumption remains sluggish.
Since 2016, the BOJ had implemented negative rates and yield curve control as part of its ultra-loose monetary stimulus. The central bank now asserts that this monetary easing framework has \"fulfilled\" its role.
The decision comes after major Japanese companies agreed to a 5.28 percent wage hike with leading labor unions this month, the largest pay increase in 33 years. This development has bolstered the BOJ's confidence in a healthy wage-price cycle taking root in Japan, suggesting mild inflation will continue.
Analysts indicate that despite this significant policy change, interest rates are expected to remain very low for the foreseeable future, and BOJ officials do not view the initial rate rise as a sign that further increases will follow quickly.
Reference(s):
Japan's central bank ends negative rates, marking 1st hike in 17 years
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