At its March 9 meeting, the Bank of Japan (BOJ) voted to end its ultra-loose monetary policy, which has kept its overnight interest rates at zero percent for five years. While a hike in the actual rate will not likely occur until the third quarter, analysts say the BOJ has begun to end its so-called “quantitative easing” stance. With incipient signs of inflation showing up in Japan’s core consumer price index for three consecutive months, BOJ policy makers have effectively begun to tighten monetary policy. The BOJ’s quantitative easing policy had the aim of increasing liquidity in the country’s commercial banking system, with a target at 30-35 trillion yen.
“Their plan is to gradually remove quantitative easing,” explains Naomi Fink, senior currency analyst at BNP Paribas, adding that this process could take from three to six months. “They are reducing [liquidity] to six trillion, which is viewed as normal demand for overnight cash in the market.”
But for now, most market watchers believe the BOJ will hold off on an actual rate hike until the third or fourth quarter of this year. BNP Paribas expects a .25 basis point hike in the third quarter, while Credit Suisse is anticipating a .25 basis point hike as early as October, with both firms seeing just one move this year.
“Not much is likely to happen for many months now,” says Clyde Wardle, currency strategist at HSBC.
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