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Friday, June 21, 2024

Bank of Japan could end negative interest rates

Key Takeaways:

  • The Bank of Japan (BOJ) is expected to end its negative interest rate policy during its policy board meeting on Monday and Tuesday, marking the first rate hike since February 2007.
  • The decision comes as inflation in Japan appears set to remain at or above the BOJ’s target of 2%, and substantial wage hikes have been agreed upon by big corporations.

The Bank of Japan (BOJ) is expected to end its negative interest rates during its policy board meeting on Monday and Tuesday. This move would mark the first rate hike since February 2007.

Japan’s inflation

The decision comes as inflation in Japan appears set to remain at or above the BOJ’s target of 2%, a condition the central bank has set for changing its policy. The BOJ’s confidence in the sustainability of inflation has been increased by substantial wage hikes agreed upon by big corporations this year.

Under the negative rate policy, which was adopted in February 2016, the BOJ imposed an interest rate of -0.1% on certain deposits by financial institutions. The leading plan is to raise the policy rate by more than 0.1 points, guiding short-term interest rates to the 0%-0.1% range. The BOJ is currently the only central bank in the world that employs negative rates, a symbol of its massive monetary easing.

Yield Curve Control

As the BOJ exits negative rates, it is also expected to scrap yield curve control, which sets a reference cap of around 1% for the long-term interest rate. Additionally, new purchases of exchange-traded funds and real estate investment trusts are likely to be terminated.

The Bank of Japan has been preparing for the end of negative rates since late last year, with Deputy Governor Shinichi Uchida acknowledging that overall monetary policy will remain accommodative even after the change.

The BOJ’s decision to end negative rates comes at a time when central banks around the world have been rapidly hiking rates to combat inflation since Russia’s invasion of Ukraine in February 2022. The BOJ’s exit from negative rates is expected to have effects on companies, and households, as it marks a significant shift in Japan’s monetary policy after years of easing.

Lazarus
Lazarushttps://ljlnews.com
Publisher and editor of LJLNews. I am a Stock Market enthusiast, with an interest for politics. I hope you enjoy reading the articles! Contact me at: Lazaruslucas@ljlnews.com

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