The Bank of Japan raised interest rates for the first time in 17 years or maintained a moderate and gradual pace.

Our reporter Tan Zhijuan reports from Beijing.
When many central banks around the world plan to start the interest rate cut cycle in 2024, the Bank of Japan announced a rate hike against the trend, which attracted the attention of the global market.
On March 19th, the Bank of Japan announced the adjustment of the monetary policy framework, decided to raise the short-term policy interest rate from -0.1% to 0-0.1%, and cancelled the yield curve control policy (YCC), and will guide the short-term interest rate as the main policy tool in the future.
The reporter of China Business News noted that this is the first time that the Bank of Japan has raised interest rates after 17 years since 2007, and it is also the first time that negative interest rates have ended since 2016.
In this regard, Liang Si, a researcher at China Bank Research Institute, said in an interview with China Business News on March 20, 2024: "The Bank of Japan’s interest rate hike mainly stems from two aspects: First, prices continue to reach the target level. The important goal of the Bank of Japan to maintain ultra-low interest rates is that inflation can reach 2%; Second, the influence of labor negotiations in Japan in the spring. The results of labor negotiations show that the average wage growth demand of labor negotiations in Japan in spring exceeded 5% for the first time in 30 years. The simultaneous rise in prices and wages implies that the conditions for raising interest rates are ripe, so it is reasonable for the Bank of Japan to raise interest rates this time. "
In this regard, the Bank of Japan predicts that Japan’s economy will continue to grow at a rate exceeding the potential growth rate, and core CPI inflation is expected to gradually increase, moving towards achieving the price target. The Bank of Japan also predicts that the inflation rate will exceed 2% in FY 2024 by temporarily maintaining a loose monetary environment.
The pace of raising interest rates may remain moderate and gradual.
Regarding the reasons for the Bank of Japan’s interest rate hike, Bai Xue, an analyst at Oriental Jincheng Research and Development Department, said: "The Bank of Japan’s interest rate hike is mainly due to the significant rebound in Japan’s inflation rate since 2022, thus breaking the long-term dilemma of structural deflation-that is, Japan’s long-term implementation of negative interest rates."
Relevant data show that under the background of strong economic trend in Japan, Japan’s CPI in 2022 and 2023 was 2.5% and 3.2% respectively, and the latest published CPI in January 2024 was 2.2%, exceeding the central bank’s policy target of 2% for 22 consecutive months; In January, the core CPI was 3.5% year-on-year, exceeding 3% for 14 consecutive months. In addition, this year’s salary negotiation-"Spring Fight" has greatly exceeded expectations, and the salary increase in fiscal year 2024 will reach 5.28%, which is not only much higher than last year’s 3.8%, but also the biggest increase since 1991-which means that Japan’s inflation will continue to remain above the policy target this year.
Therefore, in Bai Xue’s view, the expected realization of inflation level is the main reason to support the Bank of Japan to make major adjustments to monetary policy and withdraw from the negative interest rate policy.
It is worth noting that, in the opinion of industry experts, the normalization of the Bank of Japan’s monetary policy has little to do with the Fed’s interest rate cut expectations.
Bai Xue believes: "The Bank of Japan’s end of the negative interest rate policy is mainly based on policy considerations made by its own economy and inflation level, and is not related to the Fed’s expectation of interest rate cuts."
Zhaowei, chief economist of Guojin Securities, told reporters that the Bank of Japan’s withdrawal from YCC was due to the moderate recovery of Japan’s economy, and the first round of salary increase negotiations in the "Spring Fight" far exceeded expectations. Rengo, Japan’s largest trade union, announced the results of the first round of salary negotiations on March 15th: the total salary increased by 5.28%, exceeding 5% for the first time since 1991 (5.66%) and 3.8% last year. As a result, inflation and labor shortage are the main reasons for the sharp rise in wages.
Looking forward to the future, Bai Xue said: "In terms of follow-up policy trends, the Bank of Japan will remain cautious in the pace of interest rate hikes, considering that there is still some uncertainty about whether Japan’s high inflation momentum can continue."
Changjiang securities also said that the Bank of Japan’s monetary policy should be fully protected and the pace of interest rate increase should be moderate and gradual, as the economic situation inside and outside Japan is still highly uncertain.
The Bank of Japan is also cautious about raising interest rates again. On March 19th, Kazuo Ueda, governor of the Bank of Japan, said at a news conference that he did not think that the interest rate of deposits and loans would rise sharply in the future, and the pace of interest rate increase would be determined according to economic and price expectations. Judging from the current situation, a rapid rise in interest rates can be avoided.
The impact on the global market may be limited
After the announcement of the interest rate resolution, the Bank of Japan stated that it would continue to buy bonds, the yen weakened, and the dollar continued to rise against the yen, with an increase of 0.5%, approaching the 150 mark, and the bond and stock markets were moderate.
Regarding the phenomenon that the yen exchange rate does not rise but falls, Liang Si told reporters: "This is because, on the one hand, Japan’s interest rate hike has been expected, and the market has fully digested the bullish impact of this news; On the other hand, after the Bank of Japan raises interest rates, the spread between the United States and Japan is still large and will not bring obvious support to the yen. "
Some analysts also said that the yen exchange rate did not rise but fell because the market had fully expected the Bank of Japan to turn, and at the same time, as the Fed’s interest rate cut expectation weakened.
So, what impact does the Bank of Japan’s interest rate hike have on the global market?
Liang Si told reporters: "The impact of the Bank of Japan’s interest rate hike on the global market may be limited. Because major economies such as Europe and the United States are likely to enter the interest rate cut cycle this year, the global liquidity environment will enter a relaxed pattern. In this context, the Bank of Japan continues to cut interest rates sharply, which may have an impact on foreign investment and foreign trade, so it is unlikely to raise interest rates sharply in the future. "
Bai Xue also believes that the Bank of Japan will end the negative interest rate policy, and the Federal Reserve is expected to cut interest rates about three times this year, which means that the key driver of the exchange rate between the US dollar and the Japanese yen-the US-Japan spread will be significantly narrowed, which will promote the short-term appreciation of the Japanese yen and the pressure on the US dollar index.
Bai Xue also said that due to the important position of yen assets in the global capital market, the interest rate increase of yen will make international capital flow back to Japan from emerging markets and other developed countries. At the same time, as an important safe-haven currency, the appreciation of the yen may lead to a decrease in the pricing cost of bulk commodities, thus indirectly curbing the global inflation level.
Yang Delong, chief economist of Qianhai Open Source Fund, also said that, first of all, the interest rate hike announced by the Bank of Japan has also had a certain impact on the global capital market. Recently, the Japanese stock market has dropped at a high level, which is related to the market expectation that the Bank of Japan will raise interest rates.
However, zhaowei believes that looking back, fundamentals and funds may support Japanese stocks, and there is still room for valuation repair in some industries: on the one hand, the current allocation of overseas funds to Japanese stocks is not high; On the other hand, on the emotional side, the early rise of Japanese stocks is supported by profits. At present, the valuation of some industries is relatively reasonable, and there is still some upside space.
Secondly, the Bank of Japan’s interest rate hike may also delay the pace of the Fed’s interest rate cut, so that the date of the Fed’s monetary policy shift will be postponed.
Thirdly, the yen has experienced a sustained appreciation recently. Yang Delong believes: "If the Bank of Japan raises interest rates again, it will further promote the trend of the yen, which will inevitably weaken the competitiveness of Japanese export products."
However, Yang Delong pointed out that the Bank of Japan’s interest rate hike has little impact on the A-share market.
(Editor: Hao Cheng Proofreading: Yan Jingning)

























