The Bank of Japan Raises Interest Rates for the First Time in 17 Years, Ending the Era of Negative Interest Rates
In a historic move, the Bank of Japan announced on March 19 the cancellation of the negative interest rate policy and raised the benchmark interest rate from -0.1% to 0-0.1%. This marks the first time the Bank of Japan has raised interest rates since 2007, bringing an official end to the eight-year era of negative interest rates.
The decision to raise interest rates was made by a vote of 7-2, with Bank of Japan member Asahi Noguchi expressing dissent. He argued that the strengthening of a virtuous cycle of wages and prices must be reviewed before changing money market operations.
In addition to raising interest rates, the Bank of Japan also eliminated the yield curve control that suppressed long-term interest rates and the framework for purchasing risky assets such as exchange-traded funds (ETFs) and real estate investment trusts (REITs).
The Bank of Japan stated that it will respond flexibly to rapid rises in yields, such as increasing the purchase of Japanese government bonds. The Bank did not mention the 0% Japan 10-year government bond yield target in its statement.
The Bank of Japan expects the Japanese economy to continue growing at a rate exceeding the potential growth rate, with core CPI inflation gradually increasing towards achieving the price target. The Bank anticipates that by temporarily maintaining a loose monetary environment, the inflation rate will exceed 2% in fiscal 2024.
The Bank of Japan hinted that it will slow down the pace of buying Japanese government bonds in its second-quarter operational plan, lowering the purchase limit of government bonds with maturities of more than one year. However, the monthly operation frequency will remain unchanged.
This decision by the Bank of Japan has significant implications for the global economy and financial markets, as it marks a departure from the era of negative interest rates and signals a normalization of monetary policy in Japan. Markets will be closely watching how this move impacts inflation, economic growth, and asset prices in the coming months.
(Source: China Business News)