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Japan's central bank ends negative interest rate policy

The Bank of Japan announced a tightening of its monetary policy earlier than widely expected today, ending years of negative interest rates, after recent wage negotiations showed that further inflationary pressures are likely. In contrast, the Reserve Bank of Australia left its key interest rate unchanged. Tomorrow the focus will be on the Chinese central bank and the Federal Reserve in Washington, followed by the Swiss National Bank, the Bank of England and the Norwegian central bank on Thursday. 

Alessandro Fezzi, LGT
Reading time
5 minutes
Bank of Japan
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This morning, Japan's central bank announced the end of its negative interest rate policy, which has been in place since 2016, somewhat earlier than expected. The Bank of Japan (BoJ) slightly raised the range for short-term interest rates to between zero and 0.1%, the first rate hike in 17 years. The final argument in favour of a turnaround in interest rates came from the ongoing wage negotiations, with unions reported to have won wage increases of around 5%. This could lead to a sustained rise in inflationary pressures in Japan, forcing the central bank to take action.

The Reserve Bank of Australia (RBA) kept its key interest rate on hold at 4.35% for the third meeting in a row, saying that recent data suggested that inflation was slowing, although still high, and that it was likely to take some time for inflation to return to the RBA's target range of 2% to 3%.

Japan's leading index, the Nikkei 225, was trading around 0.5% higher than the previous day's close just before the close. Sydney's S&P/ASX 200 traded around 0.3% higher after the RBA decision, extending Monday's gains. South Korea's Kospi fell 1.3% and the small cap Kosdaq was down 0.9%. Hong Kong's Hang Seng fell 0.8% and China's CSI 300 was down around 0.2%.

On Wall Street, stock indices started the new trading week with gains ahead of the Federal Reserve decision. Technology stocks were the main focus. The Nasdaq indices were up around 1% for the day. The Dow Jones Industrial closed 0.2% higher at 38,790.43 and the S&P 500 closed 0.6% higher at 5,149.42. Investors are eagerly awaiting the Federal Reserve's interest rate decision on Wednesday evening. Although no change in key interest rates is expected, market participants will be looking for clues as to the timing of the first expected easing of interest rates. However, recent inflation data has dampened expectations of a rate cut. Among individual stocks, Alphabet stood out. The share price rose by around 4.5% after Bloomberg reported that the Google parent company was negotiating an artificial intelligence (AI) partnership with Apple.

In bond markets, the benchmark ten-year Treasury yield was little changed at 4.33% ahead of the Fed's decision, but significantly higher than a week ago at just under 4.15%.

Eurozone inflation fell for the second month in a row in February, moving closer to the European Central Bank's (ECB) target. For the year as a whole, consumer prices are still up 2.6%, compared with 2.8% at the start of the year and 2.9% in December. Compared with the previous month, the cost of living in the euro countries rose by an average of 0.6%. Core inflation, i.e. excluding energy and food prices, also eased to 3.1% in February from 3.3% in the previous month. Although energy and food prices continued to rise sharply, by 3.7% and 3.9% respectively, this was significantly lower than the 6.1% and 5.6% increases recorded in January.

Eurostat reported yesterday that the eurozone's external trade surplus rose sharply at the start of the year. The seasonally adjusted difference between imports and exports widened from 14.3 bn euro in December to 28.1 bn in January. Exports rose by 2.1% in January, while imports fell by 4.0%.

Corporate news in focus: Georg Fischer Q4 results.

Economic data in focus: Switzerland trade balance and SECO economic forecasts, Germany ZEW economic sentiment survey, Canada consumer prices, US housing starts and building permits. 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Lten steht Ihnen ein Berater der Bank gerne zur Verfügung.

Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi
Quelle: LGT Bank (Schweiz) AG

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