Bank of Japan ends negative interest rate policy

The Bank of Japan ended eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, making a historic shift away from a focus of reflating growth with decades of massive monetary stimulus.

COMMENTS:

HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO

"As widely expected, the BOJ scrapped negative interest rate policy. It has also begun to normalise monetary policy, including by eliminating the YCC."

"The decision is undoubtedly a historic turning point. This means that the Japanese economy is entering an inflationary economy and that interest rates may be raised gradually in the near future."

"Governor (Kazuo) Ueda is expected to emphasise a dovish tone at the press conference, but if consumer spending is confirmed to pick up in the future, further rate hikes are on the horizon. I expect another hike in short-term interest rates in October 2024."

FREDERIC NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG

"The BOJ today took its first, tentative step towards policy normalisation. The elimination of negative interest rates in particular signals the BOJ's confidence that Japan has emerged from the grip of deflation. The plunge in the value of the yen and structural changes in the labour market are primarily responsible for the pick-up in inflation."

"Further tweaks to the BOJ's monetary policy, including the removal of yield curve control and amended guidelines for asset purchases, will have little direct impact on the central bank's monetary stance in the near term, but the moves signal a first step towards policy normalisation. The big question is what happens next. Likely, the BoJ will find that it is getting "stuck at zero", being unable to lift short-term interest rates meaningfully further in the coming quarters."

PENG FONG NG, HEAD OF ASIA CREDIT, SCHRODERS, SINGAPORE

"The concerns about normalisation of BOJ's policy are very different from those of a U.S. bank. For example, according to one bank we spoke to, the domestic Japanese loan book is about 7x its domestic government bonds book, and the duration is 1+ years. It's therefore unlike the past, whereby in perhaps the U.S., certain small banks would've loaded up on 20-30 years, and it's a big chunk of the asset book. We've seen major entities in Japan being prepared for that already and have shortened duration significantly… so, the mark-to-market, and potential impact on capital, will be a lot lower."