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The Bank of Japan on Tuesday ended negative interest rates after eight years and unwound most of its unorthodox monetary easing policies, saying a new era of stable inflation is in sight in Japan.
The decision marks the end of a global era of negative interest rates that began in the 2010s. Other central banks that had introduced negative rates in the 2010s, including the European Central Bank and the Swiss National Bank, have already moved back into positive territory amid inflation triggered by the Covid-19 pandemic and the war in Ukraine.
For a generation, the Japanese central bank served as a laboratory for monetary-policy experimentation as it addressed the country’s chronic stagnation, which was marked by flat or falling prices.
On Tuesday, it said those policies have fulfilled their roles and the principal ones will be ended. The Bank of Japan is moving its key target for short-term rates to a range of 0% to 0.1%, its first rate increase since 2007.
It will no longer set a target for the yield on 10-year Japanese government bonds. And it is halting its purchases of assets such as stocks, real-estate investment trusts and corporate bonds that don’t typically go onto the books of central banks. The Bank of Japan has amassed the equivalent of hundreds of billions of dollars in such assets since the global financial crisis of 2008-09.
The central bank said it expected its target of 2% inflation “would be achieved in a sustainable and stable manner” within the next two years. Already, inflation has exceeded the target for nearly two years.
Market reaction was restrained because Bank of Japan officials had telegraphed their intentions. The Nikkei Stock Average was up slightly while the yen was down.
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