Japan ends the era of negative rates and the yen suffers

The Bank of Japan (BoJ) today put an end to the era of ultra-low rates that has lasted more than a decade in this country, considering that its economy has left its long deflationary cycle behind, a decision that caused a new depreciation of the Japanese currency.

The Japanese central bank decided to raise short-term reference interest rates from -0.1% to 0.1%, the first increase in 17 years, in addition to abandoning its policy of controlling 10-year state bond yields and interrupting purchases of exchange-traded funds (ETFs) and real estate investment funds (REITs).

The BoJ thus undertook its biggest change of course since it launched its aggressive monetary easing policy in 2013 and since it placed interest rates in negative territory in 2016, all in pursuit of achieving the objective that had been resisting for so long. achieve year-on-year inflation of 2%.

The entity considers that this goal is finally in sight after the consumer price index has been regularly above that figure for months, and especially after taking into account the larger generalized wage increases of the 5% recently agreed between unions and employers.

No more climbs on the horizon

Although the BoJ decided this Tuesday to discard several of the most important tools it used to stimulate the national economy, the entity indicated that it will continue to opt for a policy “accommodating” and was quick to rule out further tightening of its measures in the short term.

The governor of the entity, Kazuo Ueda, stated that possible additional increases “will depend on the evolution of prices” and the economic situation, and noted that it is “unlikely” that will be applied soon, in a press conference this Tuesday at the end of the BoJ monetary policy board meeting.

In its report adopted at the end of this meeting, the entity maintained its diagnosis on the evolution of the fourth largest economy in the world, which “continues in moderate recovery” although “shows some weaknesses”.

Likewise, the Japanese central bank announced that it will continue with its program of purchasing Treasury bonds to maintain the cost of financing the high public debt at an affordable price, despite its decision to abandon the strict strategy of controlling yields on these. assets around 0%.

The yen falls and the stock market rises

The Tokyo Stock Exchange ended the day positively and with the selective Nikkei benchmark once again exceeding the 40,000 point barrier after the BoJ’s decision was announced, and after having reached record levels in previous weeks, partly thanks to the bank’s stimulus. Japanese central

Investors in the Tokyo stock market seemed to have already assimilated the change of direction of the BoJ, which had been anticipated by many analysts and had even been leaked by sources from the entity to the local media, and they also found reasons for optimism in the new depreciation of the and in.

The Japanese currency surpassed the barrier of 150 units per dollar and 163 per euro, levels that had not been seen since November of last year, when there were rumors of a new intervention by the central bank to contain the fall of the yen.

Behind the new decline in the Japanese currency are the continuity of the BoJ’s monetary flexibility policies despite its rate hike and the large gap that continues to exist in this regard between the Japanese central bank and other reference entities among the large economies. world, according to analysts.

While the short-term reference interest rates in Japan will be at 0.1% after the BoJ decision, the US Federal Reserve places them around 5%, and the European Central Bank maintains them at 4.5%.