Japan ends negative rates
THE Bank of Japan Tuesday raised its interest rates for the first time in 17 years, and in the process, ended eight years of negative interest rates in what is now the world’s fourth biggest economy.
Japan’s central bank published the decision on its website Tuesday outlining that it will lift its short-term rate to “around zero to 0.1 per cent” from minus 0.1 per cent. It said it will do so partly by paying 0.1 per cent interest to deposits at the central bank, excluding required reserve balances with the changes to start taking effect on March 21. Still, it keeps rates stuck around zero as a fragile economic recovery forces the central bank to go slow on further rises in borrowing costs, Reuters news agency quoted analysts saying.
Japan’s central bank is now the last to exit negative rates which it used to battle deflation and economic stagnation since the late 1990s. With negative interest rates, the country’s central bank sought to encourage businesses and consumers to spend, by creating disincentives to saving. Negative interest rates mean deposit holders in financial institutions pay the bank an interest equivalent to the negative rate for the entity to keep the money.
“We reverted to a normal monetary policy targeting short-term interest rates, as with other central banks,” Bank of Japan Governor Kazuo Ueda said at a press conference after the decision.
“If trend inflation heightens a bit more, that may lead to an increase in short-term rates,” Ueda said, without elaborating on the likely pace and timing of further rate hikes.
However, the central bank in its statement said the country’s “economy has recovered moderately, although some weakness has been seen in part.”
The Bank of Japan also announced that it would abandon its yield curve control (YCC) policy, which was introduced in 2016 to keep the yield on 10-year Japanese government bonds around zero per cent to maintain accommodative financial conditions. Meanwhile, it would end purchases of exchange-traded funds and Japanese real estate investment trusts (J-REITs).
