With the Bank of Japan expected to end the world’s last negative interest rate policy, its far-reaching impact on the global economy and the volatility of the yen has attracted widespread attention.
(Background:
Japan and the UK’s consecutive GDP declines signal an “economic recession,” ringing the black swan alarm?
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Contents:
The end of negative interest rates and expectations of interest rate hikes
Adjustments to the Bank of Japan’s balance sheet
The future direction of the Japanese economy
With the Bank of Japan announcing the impending end of its “negative interest rate policy,” economists and market observers around the world are closely watching the impact of this change on the world’s fourth-largest economy (Japan recently fell behind Germany to become the 4th largest).
This policy shift marks the Bank of Japan’s end to more than a decade of large-scale quantitative easing measures, and whether it can bring positive help to the Japanese economy is also a matter of concern.
According to market observers’ predictions, the Bank of Japan is likely to end its negative interest rate policy as early as April this year. Recent surveys show that over 90% of economists expect the Bank of Japan’s new target rate to be set between 0% and 0.1%.
Bank of Japan Deputy Governor Shinichi Uchida also mentioned in a speech on February 8th that the Bank of Japan may use the excess reserve ratio as the main policy lever, setting its target range at 0-0.1%.
Uchida’s remarks have raised expectations in the market regarding the path of interest rates after the rate hike. According to his speech, the market expects an increase of about 50 basis points in interest rates over the next two years. However, Uchida did not directly support or deny these expectations, but emphasized that they are only viewpoints for market reference.
On the other hand, the Bank of Japan will face challenges in adjusting its massive balance sheet. Currently, the Bank of Japan holds about half of the Japanese bond market with approximately 1200 trillion yen (about 8 trillion US dollars) in bonds.
During the process of policy transition, the Bank of Japan may set a new upper limit on yields or abandon this practice and continue to announce the monthly quantity of bonds it plans to purchase.
At the same time, the Bank of Japan will also need to deal with its stock investments. Uchida pointed out that it is a natural process to terminate stock purchases during policy normalization. Currently, the Bank of Japan has become the largest holder in the Japanese stock market, indicating that it is unlikely for the Bank of Japan to resume regular purchases of ETFs and real estate investment trusts.
With this major shift in the Bank of Japan’s policy, the Japanese economy will enter a new stage, which is expected to have far-reaching implications for Japan and the global economy.
How the Bank of Japan balances the dual tasks of economic growth and inflation control, as well as how it handles its massive balance sheet, will be the focus of global economic attention in the coming years.
With the end of the last negative interest rate policy in the world, where will the Japanese economy go? This will be a question worth paying attention to in the market in the near future.