(MENAFN) In a significant policy shift announced on Tuesday, the Bank of Japan (BoJ) has opted to end its eight-year-long experiment with negative interest rates and other unconventional monetary measures. This marks a historic departure from its previous strategy of using ultra-lenient monetary stimulus to stimulate economic growth. While this decision would represent Japan's first interest rate hike in 17 years, the BoJ plans to maintain rates close to zero, reflecting the cautious approach necessitated by the fragile nature of the economic recovery, as suggested by analysts.
The BoJ's move aligns it with other central banks worldwide that have gradually moved away from negative interest rates, signaling the end of an era where policymakers relied on cheap money and unconventional monetary tools to bolster economic activity. The decision to abandon the policy introduced in 2016, which imposed a 0.1 percent fee on a limited pool of financial institutions' excess reserves held with the central bank, was widely anticipated.
Under the new framework, the BoJ has designated the overnight interest rate as the primary benchmark and aims to maintain it within a range of 0 to 0.1 percent by offering a 0.1 percent interest rate on deposits held at the central bank. This strategic adjustment underscores the BoJ's commitment to managing monetary policy in a manner that balances the need for economic stability with the imperative of adapting to evolving financial landscapes and global economic conditions.
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