The Bank of Japan Intends to Raise Rates, Abandoning Negative Values

For the first time since 2007, the Bank of Japan may increase the interest rate, ending the era of negative rates and responding to the inflation and wage growth

Bank of Japan
Bank of Japan / Suicasmo, CC BY-SA 4.0 DEED

After a meeting that will last two days and conclude on Tuesday, the Bank of Japan, according to Nikkei, may decide to raise the key interest rate.

This will be the first such step since 2007 and will finally put an end to the negative interest rate policy in effect since February 2016, reports "Interfax-Ukraine".

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The current rate is at minus 0.1%, and the Bank of Japan remains the only central bank in the world supporting a negative rate. According to information from Nikkei, the rate may be raised to a level of 0-0.1% per year.

The regulator is considering the possibility of changing its monetary policy against the backdrop of stable inflation above 2% and the recent significant increase in wages in the country, agreed upon by major corporations and unions.

In particular, last week Rengo, the largest union association in Japan, announced a wage increase of 5.28% in large companies and 4.42% in small ones, which is the maximum increase in the last 33 years.

"Shunto" – spring wage negotiations between unions and business, traditionally serve as an indicator of future consumer price growth.

The Governor of the Bank of Japan, Kazuo Ueda, previously noted that the results of these negotiations would be an important factor in deciding on the interest rate.

Recently, he emphasized in parliament that the bank is closely monitoring the dynamics of wage growth and inflation, which may indicate a willingness to abandon the policy of negative rates.

Sources within the Bank of Japan told Nikkei that even the most conservative members of the leadership are inclined to change policy in light of significant wage increases.

Furthermore, after abandoning negative rates, the Central Bank may stop controlling the yield of ten-year government bonds – a key element of its stimulus policy, setting the maximum yield level at 1% per year.

Earlier, Janet Yellen expressed doubt that interest rates in the USA could return to pre-pandemic levels, pointing to inflation and the rise in bond yields as the main obstacles.

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