BoJ ends negative interest rate regime (2024)

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BoJ ends negative interest rate regime? ›

The Bank of Japan raised interest rates this month, ending the country's historic era of negative interest rates. In a 7-2 majority vote, Japan's central bank decided to increase short-term interest rates to 0-0.1%.

As widely expected, the BOJ maintained its short-term interest rate target at a range of 0-0.1%, which was set just a month ago when it made a historical exit from its massive stimulus programme and negative interest rates.

The Bank of Japan Ends Its Negative Interest Rate Policy, Opting for Its First Hike in 17 Years. March 18, 2024, at 11:50 p.m. TOKYO (AP) — Japan's central bank raised its benchmark interest rate Tuesday for the first time in 17 years, ending a longstanding policy of negative rates meant to boost the economy.

(Bloomberg) -- The Bank of Japan scrapped the world's last negative interest rate, ending the most aggressive monetary stimulus program in modern history, while also indicating that financial conditions will stay accommodative for now.

The Bank of Japan (BoJ) ended its negative interest rate policy (NIRP) and raised rates by 10 basis points to a range of 0.0%–0.1% on March 19, 2024. This decision signals policymakers' confidence in their deflation fight.

“Extremely strong results in this spring wage negotiations were more than enough for BOJ to exit from negative interest rates. At the same time, however, they could materialise upside risks of higher inflation in service sectors, earlier than BOJ currently anticipates.

The BoJ started its negative interest rate policy in 2016 to prevent a stronger yen from damaging the export-oriented economy, and to fight deflation, though after significant wage increases at large companies, the bank decided to end the policy.

The Japanese government might have a tougher time of things, because higher interest rates will raise the cost of servicing existing and future bonds. That's particularly bad news considering the country's chunky debt load, which, at more than twice the size of the economy, is the world's heaviest.

Japan's central bank raised interest rates on Tuesday for the first time since 2007, ending the world's only negative rates regime and other unconventional policy easing measures enacted over the course of the last few decades to combat deflation.

Key Takeaways. Negative interest rates are a form of monetary policy that sees interest rates fall below 0%. Central banks and regulators use this unusual policy tool when there are strong signs of deflation. Borrowers are credited interest instead of paying interest to lenders in a negative interest rate environment.

Did BOJ end the era of negative rates with few clues on further hikes? ›

- End of negative rates: BoJ has raised the benchmark interest rate from -0.1% to 0-0.1%, in line with market expectations. This marks the first rate hike since 2007, officially ending the era of negative interest rates that lasted for 8 years.

Chiyuki Takamatsu, chief economist at f*ckoku Mutual Life Insurance, said the BOJ will be inclined to raise rates in July as consumers' price expectations increase. "Along with a foreseeable 5%-plus wage hike in large companies, the BOJ will have more confidence for the achievement of its price target," Takamatsu said.

Negative central bank rates push down short-term rates on other types of lending, which in turn influence business and consumer rates. Negative rates also spur banks and other investors seeking yield to buy short-term government debt, pushing up prices and lowering yields on these securities.

Switzerland. Switzerland has one of the lowest interest rate policies of any country in the world, set at -0.75% for commercial banks who store their money with the central bank – the Swiss National Bank (SNB).

With low interest rates seen as a key factor in the rapid decline of the yen, last month the BOJ ended its policy of keeping its benchmark interest rate below zero, lifting its short-term policy rate from -0.1% to between zero and 0.1%. After that decision, markets were then focused on the pace of further rate rises.

The value of a country's currency rises and falls relative to currencies elsewhere in line with the laws of supply and demand. At the moment, investors are being driven to offload the yen due to a yawning gulf in interest rates between Japan and the United States.

The BOJ decided to guide overnight lending rates to 0%-0.1%, up a fraction from minus 0.1%-0%. Raising its benchmark for the first time in 17 years, the central bank has become the last major monetary authority to ditch a policy of negative interest rates -- first implemented in Japan in 2016.

The policy interest rate is an interest rate that a country's monetary authority (i.e. the central bank) sets in order to influence the evolution of the main monetary variables in the economy (e.g. consumer prices, exchange rates or credit expansion, among others).

The central bank policy rate in Japan rose to 0.05 percent in March 2024. This was the first interest rate hike in 17 years. From March 21, 2024 onwards, the Bank of Japan encourages the uncollaterized overnight call rate to remain between 0.0 and 0.1 percent.

The BOJ's move will increase government borrowing costs, making it harder to counter economic shocks with debt-fueled stimulus measures.