Bank of Japan Implements First Interest Rate Increase in Nearly Two Decades

In Tokyo, the Bank of Japan (BOJ) marked a historic departure from its longstanding strategy of reinvigorating growth through extensive monetary stimulus, as it terminated eight years of negative interest rates and other unconventional policies on Tuesday.

While marking Japan's first interest rate hike in 17 years, the decision maintains rates hovering near zero due to a delicate economic recovery, prompting cautiousness from analysts regarding further increases in borrowing costs.
This transition positions Japan as the final central bank to exit negative rates, signifying the conclusion of an era characterized by policymakers globally resorting to inexpensive money and unconventional monetary measures to stimulate growth.
BOJ Governor Kazuo Ueda stated in a press conference following the announcement, "We have returned to a conventional monetary policy approach targeting short-term interest rates, aligning with other central banks.

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Ueda added, "If trend inflation continues to rise slightly, it may prompt an increase in short-term rates," without specifying the probable pace or timing of future rate hikes.
As anticipated, the BOJ abandoned a policy introduced in 2016 under former Governor Haruhiko Kuroda, which imposed a 0.1 percent charge on certain excess reserves held by financial institutions at the central bank.
The BOJ established the overnight call rate as its new policy rate and opted to manage it within a range of 0-0.1 percent, partially by offering a 0.1 percent interest on deposits held at the central bank.