[Click eStock] "BOJ Ends Negative Interest Rates... Maintains Government Bond Purchases"

The Bank of Japan (BOJ) raised its benchmark interest rate for the first time in 17 years, ending its negative interest rate policy. However, it is expected to maintain its government bond purchases.

[Image source=Yonhap News]

At the monetary policy meeting held on the 19th, the BOJ raised the benchmark interest rate from the previous -0.1% to a range of 0.0% to 0.1%. It also abolished the yield curve control policy (YCC) by removing the target for the 10-year government bond yield. In addition, the BOJ announced it would end purchases of exchange-traded funds (ETFs) and real estate investment trusts (J-REITs).

Gong Dong-rak, a researcher at Daishin Securities, said, "Inflation and wage growth rates, which were cited as prerequisites for raising the benchmark interest rate, have reached levels sufficient to prompt a policy shift," adding, "The BOJ decided its policy path ahead of the U.S. monetary policy schedule." He further analyzed, "However, future policy changes will be implemented very gradually, and in the short term, there is little room for significant impact on exchange rates or stock prices."

Researcher Gong explained, "There was considerable uncertainty about how economic agents and financial institutions would behave in the transition from a virtually zero interest rate environment to a positive interest rate era," and added, "In this context, the normalization of policy and interest rate hikes must inevitably proceed at a very gradual pace." He also noted, "The decision to maintain government bond purchases despite the interest rate hike and YCC abolition aligns with this approach."

He continued, "Among major global central banks, the BOJ is virtually the only monetary authority currently pursuing a tightening rather than easing stance," and explained, "This divergence in policy direction and approach from other countries also suggests the possibility of a very gradual response from the BOJ in the future."

Furthermore, Researcher Gong advised, "Regarding the future impact on key price variables such as interest rates, attention should be paid more to the actions of the U.S. Federal Reserve (Fed) than the BOJ," and recommended, "From a strategic perspective, the phase in which market interest rates rebound due to differences in perceptions between the BOJ’s rate hike and the Fed and the market over the extent of rate cuts is a period when bond purchases can be strengthened."

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