Japan’s central bank made a historic decision to raise interest rates for the first time since 2007, marking the end of the world’s last negative rates regime. After signs of robust wage gains, the Bank of Japan (BOJ) raised short-term interest rates from -0.1% to around 0% to 0.1%. This move signifies a significant shift in monetary policy after the negative rates regime was in effect since 2016.
Additionally, the BOJ announced the abolition of its radical yield curve control policy for 10-year Japanese government bonds and plans to reduce purchases of exchange-traded funds, Japan real estate investment trusts, and corporate bonds. Despite exceeding its 2% inflation target due to imported price increases, Japan’s central bank is now aiming for more organic and sustainable price growth. The ongoing wage negotiations with Japan Inc and its unionized workers have resulted in a robust 3.7% increase in base pay, signaling the potential for sustainable inflation through increased domestic demand.
BOJ Governor Kazuo Ueda emphasized the importance of this year’s wage negotiations in achieving sustainable price increases. The expectation is that higher salaries will stimulate domestic demand and fuel inflation in Japan’s economy. This development marks a significant shift in the BOJ’s monetary policy strategy towards fostering economic growth through wage increases and domestic demand.