Tuesday was a historic day for Japanese lenders. Japan’s central bank set its policy rate in a range of zero to 0.1 per cent, marking the first interest rate rise in 17 years and ending an era of negative rates. Japanese banks’ earnings should be the first to reflect this shift.
The Bank of Japan signalled the beginning of an end to its ultra-loose monetary policy by also removing its yield curve controls, a policy that caps the yields of 10-year Japanese government bonds. This has been in place since 2016. This shift away from decades of massive monetary stimulus should mean further increases are on the cards.
But moving interest rates closer to the central bank’s 2 per cent inflation target could take much longer than expected. The pace of further rate rises will depend on several factors, not least whether local companies and households are able to handle higher borrowing costs.