Editorial montage of Japanese flag and Japanese Yen cash banknotes
Javier Guerci | Moments | Getty Images
Japan’s central bank on Tuesday raised interest rates for the first time since 2007, ending the world’s only negative interest rate regime, following early signs of solid wage growth this year.
However, the Bank of Japan warned that it had no intention of aggressively raising interest rates, saying it “expects accommodative financial conditions to remain for the time being” given the fragile growth of the world’s fourth-largest economy. did.
The Bank of Japan announced that it has raised short-term interest rates from -0.1% to 0%-0.1%. statement At the end of the two-day March policy meeting. Japan’s negative interest rate system was introduced in 2016.
The BOJ also scrapped the radical yield curve control policy for Japanese government bonds that the central bank had adopted to target long-term interest rates by buying and selling government bonds as needed.
However, the central bank plans to continue purchasing government bonds at “roughly the same amount” as before, which currently stands at about 6 trillion yen per month.
If long-term interest rates rise rapidly, the Bank plans to take “flexible measures” such as increasing purchases of government bonds or purchasing them at fixed interest rates.
The Bank of Japan announced that it will scale back its sweeping asset purchases and quantitative easing, and suspend purchases of exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITS). It also pledged to gradually reduce its purchases of commercial paper and corporate bonds, with the goal of ending the practice within about a year.
These changes mark a historic shift and represent the sharpest reversal of the world’s most aggressive monetary easing policy, aimed at pulling Japan’s economy out of a deflationary spiral.
The Japanese yen fell to 149.92 yen against the dollar, and the Nikkei stock average fluctuated between rising and falling following the Bank of Japan’s decision. Yields on 10-year and 30-year government bonds have declined.
Financial markets have readjusted their positions over the past week as local news reports in Japan and preliminary results from wage negotiations fueled speculation that the Bank of Japan could normalize interest rates a month ahead of its April meeting. Was.
Policymakers believe that the rise in prices is mainly due to imports, and the Bank of Japan remains ultra-accommodative even though core-core inflation, which excludes food and energy prices, has exceeded its 2% target for more than a year. Japan’s monetary policy stance was narrowly avoided.
Bank of Japan Governor Kazuo Ueda has repeatedly said that the outcome of this year’s annual “spring labor” wage negotiations will be the key to sustainable price increases. The Bank of Japan hopes that rising wages will lead to a virtuous cycle in which domestic demand drives inflation.
The Bank of Japan said in a statement, “Service prices continue to rise moderately, due in part to the modest wage increases seen to date.”
“These recent data and anecdotal information gradually indicate that the virtuous cycle of wages and prices is becoming stronger, and the World Bank is confident that the price stability target will remain sustainable and stable towards the end of 2020. “We have determined that we are on track to achieve the forecast period of the January 2024 outlook report,” it added.
Rengo, Japan’s largest federation of labor unions, said Friday in its first preliminary update that ongoing “spring labor” wage negotiations between Nihon Co., Ltd. and its unionized workers have so far reduced base wages. It was announced that the weighted average increase was 3.7%.
This is even stronger than last year’s increase, which was the sharpest increase in the past 30 years.
This is a developing story. Please check for updates.
