The Bank of Japan (BOJ) made a significant announcement on March 19, stating that it will discontinue negative interest rates and reevaluate various ultra-loose monetary policies that have been in place for more than 11 years to stimulate the sluggish economy. This decision marks a departure from the unconventional monetary easing strategies that have been a cornerstone of the BOJ's approach in recent years, particularly under the leadership of Governor Haruhiko Kuroda.
During a news conference that followed a two-day policy board meeting, BOJ Governor Kazuo Ueda highlighted that the prolonged era of "monetary easing in different dimensions" has effectively served its purpose. With a focus on achieving price stability and a sustainable 2 percent inflation target, the central bank has expressed confidence in ending negative interest rates as a step towards maintaining a virtuous cycle between wages and prices. The negative interest rates, originally introduced in February 2016, formed a key component of the BOJ's unorthodox approach to monetary easing, aimed at encouraging commercial banks to boost lending to businesses by penalizing them for keeping large amounts of money in current account deposits at the central bank.
One of the significant changes in the BOJ's new direction involves increasing short-term policy interest rates, which have remained untouched for 17 years, to a range of 0.0 to 0.1 percent. Additionally, adjustments will be made to the interest rate on part of the current account deposits balance held by commercial banks at the central bank, transitioning it from negative 0.1 percent to 0.1 percent. These shifts are expected to impact various sectors, including housing loans with variable rates and short-term loans for companies, as the central bank moves away from policies like yield curve control and stops purchasing exchange-traded funds and real estate investment trusts as part of its large-scale monetary easing efforts.