The Bank of Japan has increased its interest rates for the first time in almost two decades, making it the final global central bank to abandon negative rates due to evidence of strengthening inflation.
Governed by Kazuo Ueda, the Bank of Japan's Policy Board came to their decision through a 7-2 vote which raised the overnight interest rate from -0.1 to between 0 and 0.1 percent. They also made the decision to conclude their yield curve control policy. This policy had previously limited the interest on 10-year Japanese government bonds at around zero.
The market was largely expecting the Bank of Japan to depart from their unorthodox and ultra-loose financial strategies. These measures, introduced in 2016, were put in place in an attempt to deal with the deeply ingrained deflation.
This marks the first lift in rates since 2007 and comes hot on the heels of recent data indicating inflation is starting to rise. Over recent weeks, numerous Bank of Japan rate setters have indicated that the 2 percent inflation target is now in view.
Expectations of a retreat from such a loose monetary policy were further enforced following the annual 'shunto' wage negotiations last week. The country's leading companies agreed to some of the largest pay increases in decades following the demands of labor unions.
Following today's Monetary Policy Meeting, the Bank of Japan's Policy Board reflected on the positive cycle between salaries and prices, agreeing that the 2 percent price stability target is likely to be achieved in a stable and sustainable way.
The bank declared its intention to run monetary policy as needed, guiding the short-term interest rate to be its primary policy tool, with a price stability target of 2 percent.
The board concluded by saying, "Considering the existing predictions for economic activity and prices, we expect that accommodating financial conditions will be maintained for the immediate future."
