Japan’s central bank hikes interest rate after 17 years, scraps yield curve control

The Bank of Japan (BOJ) has raised interest rates by 0.10%, marking the end to its negative interest rates policy. This is the first hike in 17 years and marks a historic shift away from a focus of reflating growth with decades of massive monetary stimulus.

The 0.10% rate hike will change the overnight call rate to a range from zero percent to 0.1 percent. The rate used by interbank lending and borrowing was within a range between minus 0.1 percent and zero percent.

The development follows as Japan’s largest labor union federation, Rengo, said last week that businesses in the country agreed to an average pay hike of 5.3 percent in the annual spring wage negotiations. That is the biggest in 33 years.

Japan’s key inflation gauge has also stayed at or above the BOJ’s 2% inflation target for 22 months due to higher import costs. Many market players had expected the central bank to exit its ultra-loose monetary policy in March or April.

The BOJ also scrapped yield curve control, a policy introduced in September 2016 under which it bought massive quantities of Japanese government bonds to keep short-term yields near its target of minus 0.1% and long-term yields around zero.

Nikkei 225 (NKY:IND) swinged to positive 0.25% on interest rate hike to 39,799.00.

(USD:JPY) is also trading higher by 66 bps to 149.797.

ETFs: (NYSE:JEQ), (NYSEARCA:EWJ), (NYSEARCA:DXJ), (NYSEARCA:FXY).