Japan’s central bank has raised its borrowing costs for the first time in 17 years. The Bank of Japan (BOJ) increased its key interest rate from -0.1% to a range of 0% to 0.1%, reflecting a surge in wages following a rise in consumer prices.
The decision to lower rates below zero in 2016 aimed to stimulate Japan’s stagnant economy. With this hike, no countries now have negative interest rates, which require individuals to pay to deposit money in a bank, encouraging spending over saving.
The BOJ also abandoned its yield curve control (YCC) policy, where it purchased Japanese government bonds to manage interest rates. Although YCC, in place since 2016, aimed to prevent long-term interest rates from rising, it faced criticism for distorting markets.
In a statement, the BOJ announced it would maintain its current level of government bond purchases and increase them if yields rose rapidly.
Expectations for a rate hike grew following Governor Kazuo Ueda’s assumption of office in April last year. Despite a slowdown in price increases, Japan’s core consumer inflation remained at the BOJ’s 2% target in January, according to the latest official figures.
