BOJ To End Negative Rate: Ideas Later

 

BOJ ends negative rate, shifts from unprecedented monetary easing

Article Source::https://mainichi.jp/english/articles/20240319/p2g/00m/0bu/027000c

Article: To be deleted after idea are added.

TOKYO (Kyodo) -- The Bank of Japan on Tuesday scrapped its negative interest rate policy, in a major overhaul of the central bank's unprecedented monetary easing framework of the past decade that aimed to end deflation.

In its first rate increase in 17 years, the BOJ decided at a two-day meeting to guide short-term interest rates within a range of zero and 0.1 percent, judging that its goal of attaining stable 2 percent inflation is "in sight."

Of the nine members, seven supported and two were against it.

Since 2016, the BOJ has set short-term interest rates at minus 0.1 percent, making it less attractive for financial institutions to leave excess funds at the central bank. The goal was to prompt commercial banks to increase lending and investment in order to rejuvenate the economy.

The Policy Board also decided to scrap its yield cap program, under which long-term interest rates have been at extremely low levels, and end its purchases of assets such as exchange-traded funds.

The changes signal the beginning of policy normalization that analysts say will likely be slow at best amid uncertainty over the inflation outlook.

Heading into the latest policy meeting, BOJ board members have sounded more confident about the probability of achieving 2 percent inflation, supported by wage growth.

The preliminary reading of a 5.28 percent pay hike offered by major Japanese firms on average during this year's labor-management negotiations has apparently boosted hopes for a virtuous cycle of pay and price increases. The pace is the fastest in over three decades.

BOJ chief Kazuo Ueda has indicated that the negative rate and yield control program will be reviewed when the inflation goal comes into view. Still, he has shot down expectations that the central bank would raise rates rapidly, saying financial conditions will remain accommodative.

Ueda is scheduled to hold a press conference later in the day. The governor's remarks will be scrutinized for any clues about future policy changes, which would also impact financial markets.

Despite market expectations that the negative rate will be removed, the yen remains weak against the U.S. dollar, partly because the gap in monetary policy between Japan and the United States remains wide.

The U.S. Federal Reserve is scheduled to hold a two-day policy-setting meeting starting Tuesday, and analysts expect it to end its aggressive monetary tightening to fight soaring inflation and start cutting rates sometime this year.