Rate expectations
In a historic move, the Bank of Japan today finally ended its negative interest rates policy. The RBA, meanwhile, kept rates on hold — and isn't expected to make its own move for many months yet.
While much of Australia’s financial elite would have been fixated on the Reserve Bank of Australia today, the real central bank action was taking place elsewhere in the region.
The RBA did exactly what it was expected to do and kept rates on hold at 4.35%, while the Bank of Japan’s move was far more historic. After an unprecedented eight years of negative interest rates, the BoJ lifted its policy rate from -0.1% to a range between 0.0% and 0.1%. The central bank also ended its yield control curve policy for the benchmark 10-year Japanese government bond, an equally unique policy to manage long-term rates.
Of course, the RBA and BoJ are facing radically different problems. But the momentous move in Tokyo adds to the sense that global economies — and by extension markets that have run hard on hopes of rates cuts — have reached an inflection point.
Japan essentially has the opposite problem to other advanced economies — a fear of deflation rather than inflation. A bowl of stand up soba noodles in Japan costs basically the same today as it did a quarter of a century ago, about 600 yen (less than $7).
