Top News

BOJ ends negative rate, shifts from unprecedented monetary easing

BOJ ends negative rate, shifts from unprecedented monetary easing

The Bank of Japan on Tuesday scrapped its negative interest rate policy in its first rate hike in 17 years, overhauling the central bank's unprecedented monetary easing framework of the past decade that aimed to end deflation. The BOJ decided at a two-day meeting to guide short-term interest rates within a range of zero and 0.1 percent, judging that its goal of attaining stable 2 percent inflation is "in sight." The symbolic move signals that the dovish BOJ is gravitating toward policy normalization that analysts still expect to be slow at best, with the central bank saying financial conditions will remain "accommodative." The decision was not unanimous, with two of the nine board members opposed. Photo taken on March 19, 2024, shows the Bank of Japan headquarters in Tokyo. (Kyodo) ==Kyodo The departure from the negative rate policy means higher borrowing costs for companies and households but a boost in the profitability of commercial banks and other financial institutions. Since 2016, the BOJ has set short-term interest rates at minus 0.1 percent, making it less attractive for financial institutions to leave excess funds at the central bank. The goal was to prompt commercial banks to increase lending and investment in order to rejuvenate the economy. The Policy Board also decided to scrap its yield cap program, under which long-term interest rates have been at extremely low levels, and end its purchases of assets such as exchange-traded funds. "It came into sight that the price stability target of 2 percent would be achieved in a sustainable and stable manner," the BOJ said in a post-meeting statement. The monetary easing framework, which involved a negative rate and yield curve control program, has "fulfilled" its role, the bank said. Despite the removal of the yield cap, the central bank will continue to buy long-term Japanese government bonds in "broadly the same quantities as before" when bond yields rise sharply. While cost-push inflation may be a major factor in accelerating wage growth, it is viewed as a critical development for Japan to ensure a virtuous cycle of pay and price hikes. Bank of Japan Governor Kazuo Ueda arrives at the central bank's head office in Tokyo on March 19, 2024. (Pool photo)(Kyodo) The BOJ expects the Japanese economy to continue to recover moderately, though economists point to weak domestic demand, especially private consumption. Japanese firms have robust capital investment plans and the focus is on whether they will materialize. Heading into the latest policy meeting, BOJ board members have sounded more confident about the probability of achieving 2 percent inflation, supported by wage growth. The preliminary reading of a 5.28 percent pay hike offered by Japanese firms on average during this year's labor-management negotiations has apparently boosted hopes for a virtuous cycle of pay and price increases. The pace is the fastest in over three decades. BOJ chief Kazuo Ueda had indicated that the negative rate policy and yield control program would be reviewed when the inflation goal came into view. Still, he shot down expectations that the central bank would raise rates rapidly, saying financial conditions will remain accommodative. Ueda is scheduled to hold a press conference later in the day. The governor's remarks will be scrutinized for any clues about future policy changes, which would also impact financial markets. The BOJ's persistence with ultralow rates sharply weakened the yen as its global counterparts rushed to raise rates to fight surging inflation. The yen fell against the U.S. dollar shortly after the BOJ's decision. A weak yen cuts both ways, as it boosts import costs for resource-scarce Japan but can be a boon to exporters by inflating their overseas earnings in yen terms. Market participants also pay close attention to the outlook for U.S. monetary policy. The Federal Reserve is scheduled to hold a two-day policy-setting meeting starting Tuesday, and analysts expect it to end its aggressive monetary tightening to fight soaring inflation and start cutting rates sometime this year. The following is a chronology of major events related to the Bank of Japan's monetary policy. February 2007 -- BOJ raises policy rate to 0.5 percent from 0.25 percent. October 2008 -- BOJ cuts interest rate to 0.3 percent after U.S. investment bank Lehman Brothers Holdings Inc. collapses. October 2010 -- BOJ shifts to zero interest rate policy by guiding overnight call rate within range of zero percent and 0.1 percent. March 2013 -- Haruhiko Kuroda becomes BOJ chief. April 2013 -- BOJ introduces "quantitative and qualitative easing" as part of "Abenomics" policy mix. It vows to double monetary base by aggressive asset purchases and raise inflation to 2 percent over next 2 years. January 2016 -- BOJ adopts negative interest rate. September 2016 -- BOJ adopts "yield curve control," focusing on controlling interest rates after "comprehensive" review. July 2018 -- BOJ decides to allow long-term interest rates to rise above de facto ceiling, move in wider range. March 2021 -- BOJ decides to allow long-term interest rates to move up or down by 0.25 percentage point. December 2022 -- BOJ decides to allow long-term interest rates to trade between minus 0.5 percent and 0.5 percent. April 2023 -- Academic Kazuo Ueda begins his five-year term as BOJ governor. July 2023 -- BOJ decides to allow long-term interest rates to trade toward 1.0 percent. October 2023 -- BOJ decides to allow long-term interest rates to rise above 1.0 percent. March 19, 2024 -- BOJ ends negative rate policy and yield curve control. Related coverage: BOJ to debate end of negative rate policy after bumper wage hikes Inflation dents budgets for cherry blossom viewing in Japan BOJ set to end negative interest rates at next week's meeting

Kyodo News Digest: March 19, 2024

6 minutes ago | KYODO NEWS


Japan vows to launch new dialogue on nuclear material ban treaty

Mar 19, 2024 | KYODO NEWS


North Korea's Kim guides drills involving "super-large" rocket launchers

Mar 19, 2024 | KYODO NEWS


LDP heavyweights urged to speak as sworn witnesses over funds scandal

Mar 19, 2024 | KYODO NEWS


Baseball: South Korean fans express powerful respect for Shohei Ohtani

1 hour ago | KYODO NEWS

Editor's pick

FEATURE: Edible bug businesses 'hearing crickets' at crossroads in Japan

Human consumption of crickets, which are rich in nutrients and expected to help solve humanity's food crisis, has reached a crossroads in Japan. A recent wave of firms joining the edible bug market may prove to be a short-lived fad as further growth is being impeded by soaring prices of ingredients and continuing resistance among consumers to making insects part of their diet. Businesses in the industry have taken a hit especially on social media where their products are sometimes singled out for abuse, and misinformation and false claims spread. In Tokushima Prefecture, crickets were used in school lunches for the first time in Japan in November 2022, making national headlines while drawing curious interest from students. The meal was provided by Gryllus Inc., a venture company in Tokushima city, western Japan, which used crickets in croquettes in a pulverized powdered form. File photo taken November 2022 in Komatsushima, Tokushima Prefecture, shows cricket powder (back L) and croquettes (R) that were made using them. (Kyodo) But earlier this year, Gryllus closed its lab for the development of food using crickets as the price of the ingredients used to feed crickets skyrocketed. It said cost-cutting would not cover the shortfall. Additionally, the company said some people continue to feel a strong revulsion to the idea of eating the chirping bugs. "Complaints have poured in by phone, and it is making the situation really tough for us," a spokesperson for the company said. In December 2020, Pasco Shikishima Corp., a major Japanese bread manufacturer based in Nagoya, launched its "Korogi Cafe" (Cricket Cafe) series, with crickets in a powdered form blended into bread or cake products, such as financiers, the popular flavored French cake. The product, which was sold exclusively online, was conceived to ostensibly prepare for future food insecurity. It was well-received and sold out within two days of its launch, also garnering widespread media coverage. But a debate about human bug consumption -- the practice known as entomophagy -- started on "X" (formerly known as Twitter) in February 2023, sparking a firestorm at the company. File photo taken November 2022 in Komatsushima, Tokushima Prefecture, shows croquettes being made using cricket powder. (Kyodo) While some people calmly expressed opinions and made fact-based points, others commented that they were disconcerted to learn that Pasco products contained crickets, with one person saying for example, "It makes me not even want to buy their products anymore." Another wrongly suggested that other products of the company might contain cricket powder and that it was not protecting consumers who might be allergic to the ingredient with appropriate labels. Both claims were groundless, with the company later explaining that Cricket Cafe products were manufactured in a dedicated facility and that there was no possibility of cricket powder being mixed with other products or plans for future use in any other products. Furthermore, Pasco said allergen warnings were clearly written on the packaging, asking consumers not to use the product if allergic to crustaceans such as crabs or shrimps, which have ingredients similar to crickets. It also clearly listed on the package cricket powder as one of the main ingredients. There were also posts calling for boycotts of Pasco based on conspiracy theories and wild rumors, such as one person who questioned whether eating crickets might cause miscarriages in pregnant women. The Cricket Cafe series has since been discontinued. In a 2013 report, the United Nations' Food and Agriculture Organization recommended insect diets as a new source of protein. This is because with the expected continued growth of the world's population there are concerns that food will be in short supply. The JMA Research Institute Inc., a Tokyo-based think tank, estimates that the global market for entomophagy will grow from about 7 billion yen ($47 million) in fiscal 2019 to 100 billion yen in fiscal 2025. While many companies entered the market anticipating growth, success was not a forgone conclusion. In January, Indetail, a startup involved in information technology that had also entered the cricket food business in Sapporo, the capital of Hokkaido, was ordered by the Sapporo District Court to begin bankruptcy proceedings. According to the Sapporo branch of credit research firm Teikoku Databank Ltd., sales of the company's cricket products failed to take off, causing a deterioration in financing for the operator. Total liabilities exceeded 200 million yen, including from its group companies. In Japan, insects have long been traditionally eaten as a delicacy in some regions, such as a southern part of Nagano Prefecture. However, there appears to have been a backlash against cricket-eating as the practice is unfamiliar to most people, who lack a sense of urgency about an impending food crisis. Experts suggest that overcoming the "ick factor" in cricket consumption will take more ingenuity on the part of the businesses. "It's true that insects have high nutritional value. There is less resistance to utilizing insects in herbal medicine and supplements," said Tomohisa Ishikawa, director of research at Japan Research Institute Ltd., a private think tank in Tokyo. But he added, "It would be better to develop technology for their utilization and apply it to food products so that it is ultimately more acceptable to consumers." Related coverage: FEATURE: New rice dictionary cooking up lexicon for Japan's revered staple Japanese pastry flavors mimic stages of love with help from AI FEATURE: Okinawan Spam soul food sandwich on a roll worldwide  

Mar 18, 2024 | KYODO NEWS

Kyodo Visual Stories

Pick Up

Partners