The Bank of Japan is poised to make a significant shift in its monetary policy, ending eight years of negative interest rates and other unconventional measures aimed at boosting economic growth. Despite the anticipated interest rate hike, Japan's rates are expected to remain around zero due to the fragile state of the economy, prompting the central bank to proceed cautiously with any further increase in borrowing costs.
This move by the Bank of Japan signifies the final step away from negative rates, making Japan the last central bank to abandon this approach among those that have sought to stimulate growth through cheap money and unconventional monetary tools. The decision to potentially end negative rates at the upcoming two-day meeting follows unexpected pay hikes announced by major corporations, swaying the likelihood of this momentous change occurring sooner than later.
In transitioning away from negative rates, the Bank of Japan is also expected to eliminate its bond yield control and stop purchasing risky assets like exchange-traded funds, essentially wrapping up the radical monetary experiment initiated by former Governor Haruhiko Kuroda back in 2013. Despite early expectations for a shift in April, recent signals suggest that the central bank may take action sooner, emphasizing a return to a simpler policy framework with a focus on targeting the front end of the yield curve for stability.