Negative interest era ends: Japan hikes RoI first time in 17 years!

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For the first time in 17 years, the Bank of Japan has increased interest rates. The Central Bank of Japan was the only country  in the world with negative interest rates. With this, the era of radical policies has come to an end. The Central Bank of Japan has also ended its other non-traditional policies. The apex bank has taken this step to boost the economy. Japan’s ultra-low interest rates have been consistently criticised publicly.

First Increase Since February 2007:

In its policy meeting, the Bank of Japan raised the short-term interest rate from (-) 0.1% to 0.1%. This is the first increase in interest rates since February 2007. However, rates are still hovering around zero. The central bank had set a 2% inflation target, indicating that Japan has finally escaped deflationary trends. Contrary to inflation, prices tend to decrease in deflation.

End of an Era:

Before this, Bank of Japan Governor Kajuo Ueda had stated that if the 2% inflation target were met, the bank would review its negative interest rate. This change marks the end of an era in which policymakers worldwide attempted to promote development through cheap money and non-traditional monetary sources.

It’s noteworthy that eight years ago, the Bank of Japan initiated negative rates and Yield Curve Control (YCC) phenomena in 2016. This  was necessary as slow inflation required the bank to make its stimulus program even more durable. The sharp depreciation of Yen increased import costs. Subsequently, public criticism of Japan’s ultra-low interest rates intensified.