The Bank of Japan head office in Chuo-ku Tokyo, March 19. (©Kyodo)
On March 19, at a monetary policy meeting, the Bank of Japan (BOJ) announced it would lift the negative interest rate policy. The central bank's move reflects widespread confidence that a virtuous cycle of wage growth and price hikes is underway. This marks the BOJ's first rate hike in 17 years. Negative interest rates have been the cornerstone of the BOJ's massive monetary easing program since 2013. Its decision is a watershed in Japanese monetary policy.
With the end of negative interest rates, the BOJ will shift to a de facto zero interest policy rate. It will increase short-term interest rates by at least 0.1 percentage points, guiding it in a range of 0-0.1%.
Spring Wage Negotiations Prove a Tailwind
The Bank will also guide long-term interest rates to "approximately zero percent." Furthermore, it will abolish yield curve control (YCC), which is currently capped at 1%. However, the BOJ intends to suppress interest rates through fixed-rate bond-buying, purchasing government bonds at specified yields when interest rates spike.
In addition, the BOJ will suspend purchases of exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs). Aiming to stabilize the market, the BOJ had been buying these assets since 2010.
BOJ Governor Kazuo Ueda described the spring wage negotiations as "critical" in informing its decision to end negative interest rates.
According to a March 15 statement by the Japanese Trade Union Confederation (RENGO), the average wage increase stood at 5.28%. This marks a 33-year high in wage hikes. Wages for small and medium-sized businesses, the focus of RENGO's survey, reached 4.42%, the highest level in 32 years. These hikes appear to have encouraged the Bank's decision.
Ueda will hold a press conference on the afternoon of March 19 to explain the Bank's decision. He will also discuss the BOJ's approach to future monetary policy management.
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(Read the article in Japanese.)
Author: Takafumi Uno, The Sankei Shimbun
