Investment Strategies

After 17 Years, Bank Of Japan At Last Raises Rates – Reactions

Editorial Staff 20 March 2024

After 17 Years, Bank Of Japan At Last Raises Rates – Reactions

For a decade and a half, the central bank has kept interest rates on hold, an extraordinary period of monetary accommodation by an institution wrestling with a stagnant economy. As inflation has increased and economic conditions improved, the BoJ decided to act yesterday.

The Bank of Japan has ended the world’s last negative interest rate – it is the first time that the country has raised rates in 17 years. Japan’s decades of stagnation appear to be over. Its stock market has won fans and sparked commentary about a wider renaissance in its economy. One possible factor is that as the West’s relations with a manufacturing powerhouse such as China have cooled, Japan’s status has risen.

Yesterday, the BoJ’s board voted seven to two to set a new policy rate range of between 0 per cent and 0.1 per cent, shifting from its -0.1 per cent short-term interest rate. The BoJ also scrapped its complex yield curve control programme. 

As central banks such as the Federal Reserve, the Bank of England and the European Central Bank hiked rates to curb inflation, Japan was something of an outlier. Now that the BoJ has acted, no major central bank has adopted a negative rate policy. 

Here are reactions from the banking and asset management sectors.

David Kohl, chief economist, Julius Baer
The end of the negative interest rate policy together with the end of the yield curve control policy and the end of exchange-traded fund purchases looks like hawkish monetary policy action. At the same time, the outlook for monetary policy in Japan remains dovish as the Bank of Japan still targets accommodative monetary conditions. Japanese government bond purchases are still possible, and inflation is expected to move below 2 per cent again in the coming months. We expect no more policy tightening in the next few months.

We expect few rate actions from here as inflation is expected to move again below 2 per cent in the coming months and uncertainty remains as to whether the solid wage demand is sufficient to kick-start sluggish private consumption in Japan.

Ben Powell, chief Asia-Pacific investment strategist of BlackRock Investment Institute
The macroeconomic backdrop in Japan remains conducive for risk, in our view. The BlackRock Investment Institute is overweight Japanese equities even after their recent healthy gains and remains underweight Japanese government bonds.

We see the outlook for equities buoyed by healthy earnings' momentum, accelerating shareholder-friendly reforms unfolding across Japan Inc and valuation support from negative real interest rates.

Howe Chung Wan, managing director and head of Asian fixed income, at Principal Asset Management
The BoJ’s decision to implement a small but meaningful 10 basis points rate hike was largely expected. Although offshore investors may be overly optimistic about the short-term opportunities, onshore remains cautious at this point. Overall, I am bullish on Japan as a way to diversify our Asia exposure. It’s the right policy environment. Confidence is building. And Japan is a bright spot in the region.

Mansoor Mohi-uddin, chief economist, Bank of Singapore
The BoJ’s dovish rate hike thus appears unlikely to stop this year’s strong rally in Japan’s equities. In contrast, the JPY [yen] dipped below 150 against the USD [dollar]. But we expect the currency will rebound when the Federal Reserve cuts interest rates later this summer.

Aninda Mitra, Head of Asia Macro and Investment Strategy, BNY Mellon Investment Management
We do not see this as the start of a prolonged hiking cycle. 

The end of explicit and large-scale policy accommodation is also a new regime for equities, but we still believe that the combination of strengthening nominal GDP and corporate reforms (including debt-buybacks and dividend payouts) warrants an overweight allocation in global portfolios.

Register for WealthBriefingAsia today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes