Prior to the seismic shift, speculation of the move gave onlookers a glimpse of hope that the BOJ’s changes had the potential to coax more investors towards Japanese government bonds over their foreign counterparts. However, observers now worry that this optimism may have been premature, ignoring critical domestic and foreign factors that could have an inhibiting impact on Japan’s policy shift.
The Bank of Japan (BOJ) announced last month that it would hike interest rates for the first time in 17 years, signalling a paradigm shift in its approach to monetary policy. With a sustainable inflation rate of 2% within sight, Japan’s central bank raised its interest rate target on overnight loans for the first time since 2007, from between –0.1% and zero to between zero and 0.1%.
The BOJ became the final central bank to scrap a negative interest rate policy, ultimately abandoning its radical monetary policy experiment targeted at dragging Japan’s economy out of stagnation and deflation.
