As part of its decades-long effort to create inflation, the Bank of Japan ended its negative rate policy and raised borrowing costs for first time since 2007.
The central bank raised its main interest rates from a range between -0.1 and 0 percent to 0 to 0.1%. It also ended the policy of purchasing government bonds in order to target yields on ten-year bond issues.
Financial markets had widely anticipated the move. It means that Japan no longer stands out as a global anomaly and has a favorable interest rate policy. This is because the world’s central banks have aggressively tightened their policy to combat inflation.
Japan has been struggling to increase prices for the last 30 years, after being hit by a deflationary and economic recession. In recent years, a measure of core consumer prices inflation has increased and reached the Bank’s target of 2 percent at the beginning of the year.
The Bank of England’s rate-setters have said that despite raising interest rates, they will continue to buy government bonds as part of a quantitative easing program. They also said “accommodative conditions” would be maintained in the short term.
Investors widely anticipated the decision, which caused the yen to fall by 0.5 percent against the dollar.
Ben Powell, BlackRock’s investment strategist, stated that the central bank had managed to normalise markets without destabilising them.
The evidence of wage growth was a key factor in today’s decision. Last Friday, the largest trade union federation, Rengo reported that the biggest companies in the country are about to give their workers the biggest wage increase in over three decades.
He said that the Bank “could sabotage these progress by aggressively tightening its policy”.