Enlarge image
Headquarters of the Bank of Japan in Tokyo
Photo: Richard A. Brooks / AFP
The Japanese central bank has decided to end its long-standing negative interest rate policy.
After a two-day meeting, the Bank of Japan (BoJ) decided to slightly increase the range for short-term interest rates to zero to 0.1 percent.
With its first hike in 17 years, the Bank of Japan is the last of the world's major central banks to abandon negative interest rate policies.
It is the first interest rate increase since February 2007. The negative interest rate policy, combined with other measures to pump money into the economy and keep borrowing costs low, "have done their job," the bank said in a statement.
Hope for permanently higher inflation
However, the bank remained cautious about “normalizing” monetary policy or ending negative lending rates.
Like many other central banks, the central bank aims to keep inflation within two percent.
Japan missed this target for many years - however, the annual inflation rate was not above the target, but far below it.
It was only in the wake of Russia's war of aggression against Ukraine that inflation rates rose and jumped slightly above the two percent mark.
Another reason why the central bank expects inflation to be permanently higher: Japanese companies have announced relatively large wage increases for this year's round of negotiations with the unions.
The BoJ's previous policies contrasted with other central banks, which have sharply raised interest rates in the past two years to combat inflation triggered by the coronavirus pandemic, the Ukraine war and supply chain problems.
The Japanese central bank's aggressively loosened monetary policy contributed to a rapid fall in the value of the yen.
The consequences hit households hard, so that the central bank came under increasing pressure to take measures to curb inflation.
beb/Reuters