Japan’s makes first interest rate hike in 17 years
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.
In a widely expected decision, the BOJ ditched a policy put in place since 2016 that applied a 0.1 per cent charge on some excess reserves financial institutions parked with the central bank. “But the actual impact on the economy is very small,” she said, noting the BOJ will likely maintain its resolve to keep monetary conditions loose. “We would not expect a substantial rise in funding costs or households mortgage rates.”
The BOJ additionally decided to discontinue purchases of risky assets like exchange-traded funds and Japanese real estate investment trusts. The stakes are high. A spike in bond yields would boost the cost of funding Japan’s huge public debt which, at twice the size of its economy, is the largest among advanced economies.
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