Japan’s central bank has concluded eight years of negative interest rates, marking a significant shift in one of the world’s most aggressive monetary easing strategies aimed at stimulating bank lending and driving demand. In its first interest rate increase in 17 years, the Bank of Japan (BOJ) announced a raise in its short-term policy rate from -0.1% to a range between zero and 0.1%.
However, analysts caution that due to a fragile economic recovery, any further rise in borrowing costs will likely be gradual.
This move positions the BOJ as the final major central bank to move away from negative rates, ending a period focused on encouraging banks to increase lending through penalties on reserves held at the national bank. In a decision anticipated by many, on Tuesday, the BOJ abandoned the strategy introduced in 2016, with the bank’s leadership concluding that achieving a stable 2% inflation rate is now a feasible goal.
The Kyodo news agency reported that seven out of the bank’s nine policy board members supported this decision, while two opposed it. Confidence among BOJ board members regarding the likelihood of attaining the 2% inflation target has been boosted by wage growth, particularly evidenced by Japan’s largest employers agreeing to a 5.28% wage increase in recent negotiations with unions. This wage hike, the most significant since 1991, has raised hopes for a positive cycle of increased wages leading to higher prices.
Source: The Guardian
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