The Bank of Japan (BoJ) decided on Tuesday to raise the short-term policy rate to 0.1 percent, marking the first move of this kind in 17 years and also withdrawing several of the stimuli that had been part of its broad monetary easing program.
The decision was taken by the BoJ’s Policy Board at its meeting that concluded on Tuesday, as it evaluated the cycle of wage and price increases in the world’s fourth-largest economy and considered that achieving a 2 percent annual inflation target can be sustainable and stable.
In addition to the rate hike, which had stood at -0.1 percent until now, the BoJ decided to end its yield-curve control for 10-year government bonds and halt net purchases of exchange-traded funds (ETFs) and real estate investment trusts (REITs). The institution stated that its quantitative and qualitative monetary easing policy, its control of government debt, and the negative interest-rate policy had fulfilled their function, according to the document adopted at the end of the meeting.
The central bank added that it would continue steering monetary policy toward the goal of price stability at 2 percent and would use short-term interest rates as the main tool in response to price movements and the evolving economic landscape. Given current prospects for activity and inflation, the BoJ expects accommodative financial conditions to persist for some time.
The move was approved by seven votes in favor and two against, and had already been anticipated by most analysts. The BoJ remained the only major central bank to maintain ultra-low rates since 2016.
The decision in 2016 to set negative short-term rates aimed at boosting lending and stimulating the economy. That year also saw the introduction of its yield-curve control program, designed to steer yields toward around 0 percent and keep financing costs on the state’s high debt low.
For today’s decision, the BoJ noted that the consumer price index has remained above 2 percent for several months, with the agency forecasting a 2.4 percent rise for the 2024 fiscal year, as well as an average wage increase of 5.28 percent reached in annual negotiations between major unions and employers.
Tokyo Stock Exchange Slide
The Nikkei, Tokyo’s benchmark stock index, fell about 0.38 percent shortly after the BoJ’s announcement, dropping 150.01 points to 39,590.43 by 12:54 local time (03:45 GMT). The broader Topix, which covers the larger-capitalization share set, declined 3.08 points or 0.11 percent to 2,725.07 points.
The Japanese currency, the yen, also weakened after the decision, trading around 149.69 per dollar, a trend that helped temper the stock market’s decline by boosting the export sector’s momentum.
The market opened lower, down roughly 0.6 percent as investors digested the expected policy shift. While the equity indices wavered and briefly turned positive, they retreated again minutes after the announcement.