Japan’s Bank of Japan (BOJ) announced its first rate hike in 17 years at a historic meeting and press briefing led by Governor Kazuo Ueda. The decision to abandon the negative interest rate policy signals Japan’s return to conventional monetary policy and reflects confidence that the country is leaving behind years of deflation and economic stagnation.
The BOJ set short-term interest rates at between 0% to 0.1%, making it their primary policy tool, while discontinuing the yield curve control program and ceasing their purchases of exchange-traded funds. Governor Ueda emphasized during his news conference that the BOJ will continue to buy long-term government bonds as necessary but keep conditions accommodative for the foreseeable future. He also mentioned that there is still some way to go before inflation expectations fully reach the 2% target, and the bank will maintain an easy stance until the underlying price trend hits that level. A significant increase in prices could lead to further rate hikes, according to Ueda.
Following the announcement, traders interpreted Ueda’s cautious comments as a sign of potential hesitancy towards future rate hikes, leading to a slight weakening of the yen. Despite initial fluctuations, both the Topix index closed 1.1% higher and the Nikkei 225 rose by 0.7% by the end of trading day.
In conclusion, Japan’s Bank of Japan’s decision to abandon its negative interest rate policy marks a significant shift in its monetary policy approach, indicating confidence in leaving behind years of deflation and economic stagnation.
