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Bank of Japan ends negative interest rate policy

The Bank of Japan (BOJ) on Tuesday decided to end its negative interest rate policy in its first rate hike in 17 years, marking a major shift away from the long-running monetary easing that Japan has seen over the past decade to put an end to deflation.

After a two-day policy meeting, the central bank’s policy board decided to guide short-term rate to a range of 0 to 0.1 percent, up a fraction from minus 0.1 to 0 percent, judging that its goal of attaining a stable 2 percent inflation is “in sight.”

“It came into sight that the price stability target of 2 percent would be achieved in a sustainable and stable manner,” the BOJ said in a post-meeting statement.

On top of returning to positive rates, the BOJ also decided to scrap its yield curve control policy, under which the central bank bought large quantities of Japanese government bonds to keep long-term interest rates at around zero percent to maintain accommodative financial conditions.

Meanwhile, to prevent a rapid increase in interest rates, the BOJ pledged to continue to purchase Japanese government bonds as necessary, underscoring the continuing weakness in the economy, as household consumption has remained sluggish.

The central bank introduced negative rates and yield curve control in 2016, which had been a symbol of the BOJ’s more-than-decade-long ultraloose monetary stimulus.

The monetary easing framework, which involved a negative rate and yield curve control program, has “fulfilled” its role, the BOJ said.

The widely expected move on Tuesday comes after major Japanese firms agreed to a 5.28 percent hike in wages with major labor unions this month, marking the biggest pay increase in 33 years, which has heightened the BOJ’s confidence that a healthy wage-price cycle is taking root in Japan, and mild inflation will continue.

Despite the major policy overhaul, interest rates are likely to stay very low for the foreseeable future, and BOJ officials do not see the first rise as a signal that more will quickly follow, analysts here said.

Famagusta Gazette