News FlashFundingLast updated: 19 March 2024

Bank of Japan Scraps the World's Last Negative Rates in First Hike in 17 Years, Lifting the Rate to 0% to 0.1%

Japan's central bank, the Bank of Japan (BOJ), scrapped the world's last negative interest rate policy on March 19, 2024, lifting the short-term policy rate to a range of 0% to 0.1% from -0.1% — the first rate hike in 17 years.

A historic exit from negative rates

The decision was announced at the conclusion of the two-day Monetary Policy Meeting held on March 18-19, The Japan Times reported. It closed a decade of radical monetary easing: negative rates had been in place since 2016, roughly eight years, and the country's framework remained the last negative-rate policy in the world.

Until the decision, the BOJ's short-term policy rate stood at -0.1%. Under the new framework it sits in a range of 0% to 0.1%. For the first time in 17 years the central bank raised borrowing costs instead of holding or cutting them, ending the negative-rate era that began in 2016.

Wage gains put the 2% target "in sight"

The policy turn was prompted by robust wage gains. They gave the central bank confidence that a healthy wage-price cycle was taking root and that the 2% price-stability target was "in sight" of being achieved in a sustainable way.

Key parameters of the March 2024 decision

• policy rate lifted to a range of 0% to 0.1% from -0.1%;
• first rate hike by the central bank in 17 years;
• negative rates scrapped after being in place since 2016, about eight years;
• end of a decade of radical monetary easing;
• 2% price-stability target judged to be "in sight" of sustainable achievement.

The won and the yen: Asian market reaction

The shift was felt beyond Japan's borders the same day. The won of South Korea weakened by about 6.1 won against the dollar to 1,339.8 won on March 19, 2024, Yonhap News Agency reported. The won's slide followed the yen's fall after the BOJ hinted it would keep easing even as it ended negative rates.

The currency moves show how closely regional markets track the BOJ's signals: ending negative rates did not mean ending accommodative policy, and the keep-easing hint moved the yen and, with it, the won.

Timeline of the policy turn

1. 2016 — negative interest rate policy takes effect in Japan;
2. March 18-19, 2024 — the two-day Monetary Policy Meeting;
3. March 19, 2024 — the rate lifted to a range of 0% to 0.1% from -0.1%, the first hike in 17 years; a decade of radical easing ends;
4. the same day — the yen falls on the keep-easing hint, and the won weakens about 6.1 won to 1,339.8 per dollar.

With the March 2024 decision, the world's last negative interest rate policy is history. The Bank of Japan now operates with a short-term policy rate at or above zero for the first time since 2016, while its guidance keeps the door open to continued easing.