AsiaIn this week's letter, we delve into the recent wave of rate decisions enacted by central banks across the region. We begin by examining the Bank of Japan’s (BoJ) latest policy shifts, highlighting its significant move to terminate its negative interest rate policy. We then explore financial market responses to the BoJ’s decision, discussing possible drivers behind the subsequent weakness of the yen and declines in Japanese government bond (JGB) yields. We move next to review interest rate developments in China, where loan prime rates (LPR) were left unchanged. We then shift our focus to the economies of Australia and New Zealand, where we examine the change in messaging by the Reserve Bank of Australia (RBA) and disappointing Q4 GDP results in New Zealand. Finally, we wrap up the week’s letter with a nod to interest rate decisions in Taiwan and Indonesia.
Recent events speak to the varied stages of monetary policy implemented by central banks in the region, given respective domestic considerations. China continues to pursue an easing approach with economic stabilization looking only nascent, whereas Japan has only recently initiated policy tightening due to encouraging wage growth. Australia and New Zealand, having seemingly completed their tightening cycles, now face increasing pressures to consider easing moves given recent weak economic readings, although with inflation a persisting concern.
Policy shifts by the Bank of Japan Recent headlines have shed light on some subtle yet significant aspects of the Bank of Japan’s (BoJ) departure from its negative interest rate policy. In a notable shift, the BoJ has now set its sights on targeting the uncollateralized overnight call rate to lie between 0% and 0.1% (chart 1). This objective will be accomplished by imposing an interest rate of 0.1% on the current account balances that financial institutions maintain with the bank, starting March 21. Previously, the BoJ aimed at a rate of -0.1% on financial institutions' Policy-Rate Balances. Governor Ueda highlighted that this move signifies the bank's return to a "normal" monetary policy that focuses on short-term interest rates, aligning with practices of other central banks. Additionally, the BoJ has terminated its Yield Curve Control (YCC) policy and announced the cessation of its purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). Furthermore, the bank intends to gradually conclude its buying of commercial paper and corporate bonds over the coming year.
