Bank of Japan shocked markets with strategy change

This was seen by markets as the first step towards tightening the monetary reins. Up to this point, the BOJ had always emphasized that it was the only major central bank in the world to pursue its strategy of extremely loose monetary policy and supporting domestic demand.

The BOJ has adhered to its program of keeping borrowing costs at an all-time low. However, it allowed yields on 10-year Japanese government bonds to be between minus 0.5 percent and 0.5 percent. That’s above the current minus 0.25 percent and 0.25 percent range. The decision surprised even economists. By contrast, the Nikkei index on the Tokyo stock market fell sharply, while the yen appreciated sharply against the dollar.

According to economists, the BOJ’s move means that lending rates to companies and households will rise and the central bank will buy fewer government bonds in the markets in the future. The BOJ holds more than 50 percent of government securities.

“This is the first step towards a policy shift away from extremely low interest rates and towards a more balanced policy that includes significantly rising prices and the ultra-weak yen,” said Martin Schulz, chief economist at Japanese technology group Fujitsu. Surprise step from BOJ

In the face of rising international inflation and the currently extremely weak yen, monetary policy is now trying to meet this challenge in a more “balanced” way and again with higher interest rates over the long term. This poses a new challenge for Prime Minister Fumio Kishida’s government to consider higher taxes to finance its spending. Companies will also no longer be able to rely on cheap money in the future. According to economists, they now need to invest more in their competitiveness, for example through digitalisation.

(SDA)