The Bank of Japan has decided to revise its current large-scale monetary easing measures, raising the upper limit of long-term interest rates, which has been kept at around 0.25%, to around 0.5%.
As the Bank of Japan permitted interest rate hikes, the market perceived that this was effectively tightening monetary policy, prompting the appreciation of the yen and the depreciation of the dollar.
Why did the Bank of Japan move now, even though central banks in Europe and the United States are raising interest rates?
Shimomura, a reporter in charge of the Bank of Japan in the Economic Department, explains.
Q.
The market took it as a de facto monetary tightening.
A.
By raising the upper limit of the fluctuation range of interest rates, the Bank of Japan has allowed interest rates to rise.
Market acceptance is natural.
At a press conference, Governor Kuroda repeatedly explained that the BOJ did not intend to raise interest rates or tighten monetary policy.
However, the Bank of Japan has so far explained that the expansion of the volatility corresponds to "monetary tightening".
Therefore, the decision on the 20th cannot be denied.
Many market participants took this as a surprise and reacted violently, causing the yen to appreciate and stock prices to fall.
Q.
Why did Europe and the United States not revise their easing measures while raising interest rates?
A.
With interest rate hikes in Europe and the United States, upward pressure on long-term interest rates was increasing in Japan as well.
In response, the Bank of Japan has continued to buy large amounts of government bonds in an attempt to forcibly curb the rise in interest rates.
As a result, the bond market, which buys and sells government bonds, has been distorted since autumn, with 10-year government bonds, which serve as a benchmark for various transactions, failing to occur one after another.
I believe that the Bank of Japan decided that it had to somehow correct the fact that the market was no longer functioning normally as a side effect.
However, experts also point out that it is difficult to understand why the revision was made this time only from Governor Kuroda's explanation.
Izuru Kato, chief economist at Totan Research, said, "It was a great surprise. Monetary policy has distorted the market, so I would welcome the change, but it's very different from what I've explained so far, and it's a bewildering market. “There are a lot of participants,” he said.
Q.Are you okay with interest rates rising now?
What will happen to the economy from now on?
A. There is a possibility that the yen will appreciate due to this policy revision.
The depreciation of the yen is likely to have a positive effect in the short term, as it has been a factor in rising raw material prices.
On the other hand, since long-term interest rates will rise, some experts point out that interest rates on corporate loans and fixed interest rates on housing loans may rise.
The Japanese economy is in the process of recovering from the corona disaster.
There is also growing concern that overseas economies will slow down in the future as the brakes are put on by significant interest rate hikes in Europe and the United States.
For that reason alone, will this decision be positive or negative for the Japanese economy and financial markets?
I think we need to pay close attention to its impact.