The Bank of Japan raises its key rate for the first time since 2007

The Bank of Japan (BoJ) raised its key rate on Tuesday March 19, a first in 17 years, simultaneously putting an end to its negative rate policy and control of Japanese bond yields, two unconventional tools in place since 2016. Taking note of a now “more solid” dynamic between wages and inflation in Japan, the BoJ will now apply a short-term interest rate between 0% and 0.1%, compared to -0.1%. previously. “Accommodative financial conditions” should remain in place for the moment, however, insisted the BoJ in its press release.

The BoJ was the last central bank in the world to apply a negative rate, after this experiment ended in Europe in 2022. It also ended its tool for controlling the Japanese bond yield curve, which aimed to maintain their yields at ten years around 0%. In fact, this controversial tool because it is a source of distortions in the Japanese bond market had already been practically abandoned since last year: the BoJ had made it more and more flexible and even accepted since the end of last October that a “reference” ceiling of 1% for ten-year yields is exceeded.

The BoJ, however, intends to continue its purchases of Japanese public bonds (JGB) “in approximately the same proportions as before”, so as to continue to be able to react effectively in the event of a “rapid rise” in long-term yields, he said. -she clarified. On the other hand, it will cease its asset purchase programs other than JGBs: exchange-traded funds (ETFs), Japanese real estate mutual funds (J-REITs), and “gradually reduce” its purchases of debt securities. of companies to put an end to it “within about a year”.

The financial markets had anticipated this start of normalization of the BoJ's ultra-accommodating monetary policy, especially since the preliminary results last Friday of the annual wage negotiations in Japan, which resulted in a record increase in wages in the country since 1991. Thus the flagship Nikkei index of the Tokyo Stock Exchange rose even after these announcements (0.15% around 04:15 GMT), although it had started the session slightly down. As for the yen, it fell against the dollar, which was worth 149.8 yen around 04:15 GMT compared to around 149.3 yen before the BoJ announcements.