Bank of Japan (BoJ) Governor Kazuo Ueda during a press conference in Tokyo on March 19, 2024, following a meeting that ended the institution’s negative rate policy (AFP/Richard A. Brooks)
The Bank of Japan (BoJ) raised its key rate on Tuesday and put an end to the negative rate policy that it was the last in the world to practice, thanks to a rise in wages finally materializing in the archipelago.
The institution, whose decision had been widely anticipated by the markets, had been practicing negative rates since 2016 in order to support the country’s economic activity and encourage inflation, which had long been sluggish in Japan. It had not raised its rates since 2007.
This is a “new era” for the Bank of Japan, whose monetary policy has been ultra-accommodating since 2013, reacted economist Tom Kenny in a note from the ANZ bank.
The BoJ took note of the start of a “virtuous circle between wages and inflation” in Japan to decide to apply a short-term interest rate between 0% and 0.1%, compared to a range of – 0.1% to 0% previously.
This key rate for overnight interbank loans will now be its “main tool”, she added. “It will be normal monetary policy,” its governor Kazuo Ueda said on Tuesday at a press conference in Tokyo.
But in the current state of forecasts for economic activity and prices in Japan, “a rapid pace” of rate increases “will be avoided”, specified Mr. Ueda, insisting on the need to maintain “accommodative” financial conditions. ” For now.
And this “moment” should last: because the BoJ believes that its objective of 2% inflation will be achieved “in a stable and sustainable manner” towards the end of the period of its latest macroeconomic projections delivered in January, it that is to say not before 2025-2026.
– Continued bond purchases –
The BoJ also ended its tool for controlling the Japanese bond yield curve on Tuesday, which aimed to keep their ten-year yields around 0%.
The headquarters of the Bank of Japan in central Tokyo, March 19, 2024 (AFP/Richard A. Brooks)
In fact, this controversial tool because it is a source of bond market distortions had already been practically abandoned since last year, the BoJ having made it more and more flexible.
The BoJ, however, intends to continue its purchases of Japanese public bonds (JGB) “in approximately the same proportions as before” so as to continue to be able to react effectively in the event of a “rapid rise” in long-term yields, a- she clarified.
Its purchases of JGB currently represent around 6,000 billion yen per month (nearly 37 billion euros).
On the other hand, the institution will stop its purchase programs for other financial assets: exchange-traded funds (ETFs), Japanese real estate mutual funds (J-REITs), and “gradually reduce” its purchases of securities. corporate debts to put an end to it “within about a year”.
– The Tokyo Stock Exchange reassured, the yen weakens –
The BoJ’s monetary shift, negotiated gently, did not surprise the financial markets, especially since the preliminary results last Friday of the annual wage negotiations in Japan, which resulted in a record increase in wages in the country since 1991.
These results “were an important factor” to begin the normalization of monetary policy, Mr. Ueda admitted on Tuesday.
It was the central piece of the puzzle that the BoJ was waiting for to start acting seriously, almost two years after the start of a cycle of drastic tightening of credit conditions in the United States and Europe under the effect of a strong inflationary surge.
Inflation has also awakened in Japan since 2022 with the surge in energy prices in the wake of the start of the Russian invasion of Ukraine, and the BoJ’s 2% target has been exceeded.
But domestic demand and economic growth are still weak in Japan, making it difficult to maintain inflation at this level over time.
Satisfied with the BoJ’s accommodating tone and its unsurprising announcements, the flagship Nikkei index of the Tokyo Stock Exchange erased its initial losses to close up (+0.66%).
As for the yen, it fell significantly against the dollar, which was worth 150.40 yen after 08:30 GMT, a two-week low for the Japanese currency, compared to around 149.3 yen per dollar before the BoJ announcements.
By opening the door to better returns on bank deposits and investments in Japan, the BoJ’s positive key rate could ultimately improve the purchasing power of households and the country’s economic growth, enough to encourage the Tokyo Stock Exchange to continue to move forward, commented Charu Chanana, strategist at Saxo Capital Markets.
© 2024 AFP
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