Japan’s central bank made a historic move on Tuesday by abandoning its long-standing negative interest rate policy, signaling the start of a gradual retreat from one of the globe’s most assertive monetary easing initiatives.
In a significant shift, the Bank of Japan opted to elevate the policy short-term rate from its previous level of -0.1 percent to a range between zero and 0.1 percent. This landmark decision marks the first interest rate hike in 17 years, highlighting a notable departure from the bank’s previous monetary stance.
The Bank of Japan (BOJ) announced its decision to discontinue its negative interest rate policy, citing optimism regarding the attainment of its two percent price stability target by the end of the projection period outlined in the January 2024 Outlook Report. This move signifies the central bank’s confidence in achieving sustainable and stable economic growth in the foreseeable future.
Furthermore, the BOJ disclosed its intention to terminate other unconventional policies, including its yield curve control program on bonds and the purchase of exchange-traded funds (ETFs). This decision underscores the BOJ’s commitment to gradually normalize its monetary policy framework as economic conditions evolve.
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These developments follow a significant wage increase secured by Japan’s largest trade union from employers, marking the most substantial uptick since 1991. BOJ Chief Kazuo Ueda’s previous statements regarding the potential review of negative interest rates and other easing measures in the event of inflation reaching 2 percent and wage growth align with the current policy adjustments.
For years, the BOJ has diverged from the global trend of rising interest rates spurred by heightened inflationary pressures, a stance that aims to address Japan’s prolonged period of economic stagnation and deflation. The nation’s policymakers have pursued ultra-loose monetary policies to counter the enduring effects of the asset bubble collapse in the early 1990s, commonly referred to as the “lost decades.”
Japan’s recent shift in economic rankings, losing its position as the world’s third-largest economy to Germany, underscores the significance of these policy adjustments as the nation strives to navigate evolving global economic dynamics.
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Sources: Alzazeera