The Bank of Japan ended its negative interest rate policy on 19 March 2024. At its Monetary Policy Meeting, the Policy Board decided to encourage the uncollateralised overnight call rate to remain at around 0 to 0.1%, applying an interest rate of 0.1% to current account balances held by financial institutions at the Bank, effective from 21 March 2024.
Corporate INTL Newsroom · Banking & Finance
Bank of Japan Ends Negative Interest Rate Policy and Yield Curve Control
By The Corporate INTL Newsroom · 20 March 2024
In its statement on changes in the monetary policy framework, the Bank said the virtuous cycle between wages and prices had become more solid and that sustainable and stable achievement of its 2% price stability target had come in sight toward the end of the projection period of its January 2024 Outlook Report. It concluded that quantitative and qualitative monetary easing with yield curve control, and the negative interest rate policy, had fulfilled their roles.
What the Bank decided
The guideline for the short-term rate was adopted by a 7 to 2 majority. Yield curve control has been discontinued, but the Bank will continue buying Japanese government bonds in broadly the same amounts as before, currently about 6 trillion yen a month, and said it would respond nimbly to a rapid rise in long-term interest rates, for example by increasing purchases. That decision was taken by an 8 to 1 majority.
The Board decided unanimously to stop buying exchange-traded funds and Japan real estate investment trusts, and to reduce its purchases of commercial paper and corporate bonds gradually, ending them in about one year. Loans under its fund-provisioning measures will carry an interest rate of 0.1% for one year.
What it means for markets and lenders
The Bank's summary of the new framework makes the short-term interest rate its primary policy tool. Banks, borrowers, bond investors and asset managers with Japanese exposure will be watching the pace of any further moves.
What happens next
The Bank said that, given the current outlook, it expects accommodative financial conditions to be maintained for the time being. It will set policy as appropriate in response to developments in economic activity, prices and financial conditions, with the end of the negative interest rate policy marking a return to a conventional rate-setting framework.
Sources
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