It’s the end of an era in central banking today, as Japan halts its policy of operating negative interest rates. The Bank of Japan has raised borrowing costs for the first time since 2007, choosing to tighten policy after fears of deflation ebbed. It is raising Japan’s interest rates from -0.1% to between zero and 0.1%, ending an eight-year stint of negative borrowing costs, brought in to stimulate spending and borrowing. It has also ended its yield curve control (YCC) policy, under which it has been capping long-term interest rates around zero since 2016. The move makes the BoJ the last central bank to unwind the ultra-loose monetary policy imposed after the financial crisis. Announcing the move, the BoJ declared that its goal of hitting 2% inflation in a sustainable and stable manner was in sight, adding: “It [the BoJ] considers that its large-scale monetary easing measures have fulfilled their roles, including the negative interest rate policy and the yield curve control.” Several major Japanese companies, including Honda, Nippon Steel and ANA Holdings, have recently handed workers their biggest pay rise in over three decades, which has bolstered policymakers’ hopes that prices will rise sustainably. The BoJ’s timing is slightly ironic, coming as other major central banks ponder how soon they can risk loosening policy. Both the US Federal Reserve and the Bank of England are expected to leave rates on hold this week. Markets have taken the news in their stride, with Japan’s Nikkei 225 index rising by 0.66% to close at 40,003 points, up 263.16, today. Stephen Innes, a managing partner at SPI Asset Management, says: "As the Bank of Japan (BoJ) made significant policy changes, crossing what can be seen as a Rubicon in its monetary approach, the moves had been extensively communicated to the market beforehand. 'Consequently, the adjustments were largely anticipated, and the markets had priced them in almost perfectly." The agenda • 10am GMT: ZEW index of eurozone economic sentiment • 12.30pm GMT: US housing starts for February • 3pm GMT: Chancellor of the exchequer Jeremy Hunt faces questions from the economic affairs committee We’ll be tracking all the main events throughout the day ...
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