Bank of Japan turns a page with first interest rate hike since 2007

The Bank of Japan (BOJ) raised its main interest rate on Tuesday from minus 0.1 percent to a range of 0-0.1 percent. This is the first increase since 2007 and signifies the end of the negative rates era, with Japan being the last country worldwide to adopt this approach. The decision was more hawkish than experts had predicted.

The announcement, made following the Monetary Policy Board's two-day meeting, highlighted that the Bank of Japan aims to avoid drastic policies. Interest rates will remain at a low level to support the still "fragile" economic growth. This indicates that Tuesday's hike is not the start of a series of aggressive tightening measures seen recently in the United States and Europe. Therefore, Japan continues to have the world's lowest interest rates.

The decision by the Japanese central bank was unanimous. All but two of the 9 members of the Monetary Policy Board voted in favour of the adjusted 0-0.1 percent range. It marks a historic move by the new bank president, Kazuo Ueda, who assumed the role in April.

The bank cited several reasons. The core inflation measure, which is the BOJ's main focus, has been at or above 2 percent for 22 months. Economists expect this trend to persist, as indicated by recent consumer price data from the country.

Experts, as reported by Bloomberg, noted that the Japanese central bank made a notable move - it moved away from unconventional monetary policy tools. It concluded its so-called yield curve control of government bonds, though it announced plans to maintain the current scale of purchases. Monthly, it aims to spend approximately ¥6 trillion (£39 billion), from

Financial markets showed a mixed response to the BOJ's decisions. The Japanese stock index, Nikkei 225, initially dropped, but soon recouped its losses, remaining above the significant 40,000-point mark. The yen weakened by around 0.9 percent against the US dollar, reaching 149.92 to the dollar.

President Ueda, the first BOJ chief from the academic sphere, had previously signalled a shift away from ultra-loose policy. In July and October, he introduced slight modifications to the yield curve control programme. Few predicted he would move away from so many contentious tools, which had become burdensome for the central bank, in under a year of leadership.

Analysts believe the rate hike will not adversely affect the economy. Japan is expected to continue fostering productivity and domestic demand.

In autumn, when initial reports emerged about the Bank of Japan potentially raising rates, Polish experts weighed in on the matter. - We're discussing a nation that hasn't seen rate increases in 15 years, and rates haven't surpassed 2 percent for over three decades - explained experts from XTB in their analysis.

The Bank of Japan's move to increase interest rates contrasts with the global monetary trends. As the Polish Economic Institute points out, the world's largest economies are likely gearing up to lower their rates. The FED is expected to initiate this process in the summer, with the European Central Bank poised to follow.

According to PIE analysts, the rate reductions should be moderate - anticipating about three to four cuts. Futures contracts are projecting that the main ECB rate may fall to about 3.5 percent by year's end, and the Fed rate could near 4 percent. The rationale for softer monetary policy in the eurozone stems from sluggish economic activity. In the US, the economic outlook appears more mixed due to varying macroeconomic data.

The Polish Economic Institute foresees stable interest rates in Poland in the forthcoming months, with a potential 0.25 percent cut in November. Is this forecast achievable?

NBP President Adam Glapiński suggested that discussions on rate cuts in Poland might only commence in the latter half of the year. Actions by the Fed and ECB won't directly influence decisions by the MPC, though they could impact the Polish economy, for instance, by strengthening the zloty.