The Bank of Japan (BOJ) announced on Tuesday, Mar. 19, that it would end its negative interest rate policy and raise borrowing rates for the first time in 17 years.
According to Japanese public broadcaster NHK, the bank would also abandon its yield-curve control framework, which held down long-term and short-term interest rates.
"We judged that sustainable, stable achievement of our price target came in sight," the central bank said in a statement, explaining the decision to dismantle former Governor Haruhiko Kuroda's massive stimulus program.
The announcement came after the BOJ wrapped up its two-day meeting this week. The BOJ is now setting the overnight call rate as its new policy target.
Policymakers also said they would encourage the overnight call rate to remain at around 0%.
The central bank's previous interest rate hike happened in February 2007, keeping the short-term interest rate at -0.1% for some deposits by financial institutions they held in 2016.
At the same time, the bank would no longer set a target for 10-year government bond yields, which meant it would now tolerate higher long-term rates.
Under its yield curve control, the bank bought large quantities of Japanese government bonds to keep long-term interest rates at around 0%, which encouraged Japanese consumers and businesses to spend and invest and helped sustain stronger economic growth.
"The BOJ today took its first, tentative step towards policy normalization," HSBC chief Asia economist Frederic Neumann told Reuters. "The elimination of negative interest rates in particular signals the BOJ's confidence that Japan has emerged from the grip of deflation."
