Morning Market Brief: March 20, 2024

BoJ ends eight years of negative interest rates?

The Bank of Japan (BoJ) has raised short-term interest rates to a range of 0% to 0.1%. The increase met market expectations and was the first in Japan since 2007. It marks the end of an unconventional policy aimed at boosting economic activity in Japan by encouraging spending over saving. The decision came after crucial wage negotiations with Japan’s trade unions.?

• Large corporations in Japan agreed to raise salaries by the most in three decades. Major companies agreed to bump up wages by over 5%. BoJ policymakers expect this to boost domestic demand. However, this remains to be seen.
• Inflation in Japan had remained over 2% for more than a year. Nonetheless, the BoJ had maintained its ultra-loose monetary policy stance until yesterday.
• This month, Japan avoided falling into a technical recession. Provisional figures initially indicated two consecutive quarters of negative gross domestic product (GDP) growth at the end of 2023. The revised data showed that GDP increased by 0.4% in the fourth quarter. It will be interesting to see economic growth data for the first quarter of 2024.
• The Japanese yen declined following the decision. The yen fell to over 150 yen to the US dollar. Several Japanese banks raised interest rates on yen deposits.

As the rate increase in Japan was well expected, the immediate market impact might be moderate. On the other end of the policy spectrum, the Bank of Canada is waiting for consistently lower inflation data before it starts to ease interest-rate policy. Canadian inflation data showed that the annual rate declined in February to 2.8%. South of the border, the US Federal Reserve Board is widely expected to hold interest rates for a fifth consecutive meeting today.

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