Bank of Japan raises interest rates for the first time in 17 years

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The Bank of Japan ended the most aggressive monetary stimulus program in modern history, scrapping the world’s last negative interest rate while keeping financial conditions easy for now — a dovish tone that weakened the yen after the widely expected decision.

The central bank set a new policy rate range of between 0% and 0.1%, shifting from a -0.1% short-term interest rate, according to a statement after a two-day board gathering that concluded Tuesday. The BOJ also scrapped the yield curve control program while pledging to keep buying long-term government bonds as needed. It also ended its purchases of exchange-traded funds.

The bank’s indication that financial conditions will remain accommodative suggests this isn’t the beginning of an aggressive tightening cycle of the sort seen in US and Europe in recent years. That stance appeared to disappoint some market players looking for a more aggressive rate outlook. The vote for the rate hike was 7-2. 

The yen fell against the dollar from 149.29 just before the announcement to as weak as 149.92 afterwards.

In ending the negative rate, Governor Kazuo Ueda makes history by turning the page on the BOJ’s experimental monetary easing program after years in which Japan’s central bank was a global outlier. The policy gap now becomes even more stark as the BOJ makes its first upward move in close to 17 years just as its peers around the world are mulling cutting their rates after historically aggressive tightening campaigns.

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