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It took nearly a decade, but the Bank of Japan has finally called time on its 17-year-long interest rate status quo!
This step forward is a major move for Japan and its economy which is doing rather well these days – while other CBs have exited the global era of cheap money starting 2010, the BOJ started to benefit from external factors such as inflationary pressure since the beginning of the pandemic, the war in Ukraine, the trouble in ME.
Since the move was anticipated, the JPY hovered around 150 per dollar and the Nikkei maintained is positive trend. The move towards policy normalization also suggests the BOJ is confident it has emerged from the threat of deflation, and any rate increases over the medium term are likely to be gradual. In the next step, the BOJ is expected to attempt to shrink its balance sheet further, but its next policy action, i.e. hiking rate, whether to proceed with a tapering in the bond-buying or reduction in the balance sheet or vice-versa was not communicated.
Knowledge is power.
