The Bank of Japan ends its negative rates regime and abandons yield curve control in a historic move.

• The Bank of Japan (BOJ) increased its short-term interest rates to approximately 0% to 0.1% from -0.1%, as stated in its March policy meeting.
• The central bank has discontinued its yield-curve control policy, but has pledged to maintain its purchases of Japanese government bonds with "broadly the same amount" as before.
• BOJ to stop purchases of exchange-traded funds and Japan real estate investment trusts.
• It committed to phasing out its purchases of commercial paper and corporate bonds, with the intention of ending this practice within approximately one year.

On Tuesday, Japan's central bank increased interest rates for the first time since 2007, signaling the end of the world's negative rates regime due to early indications of strong wage growth this year.

The Bank of Japan has stated that it does not plan to implement aggressive rate hikes, as it anticipates that accommodative financial conditions will continue for the time being, due to the fragile growth in the world's fourth-largest economy.

The BOJ increased its short-term interest rates from -0.1% to approximately 0% to 0.1% during its March policy meeting, ending Japan's negative rates regime that began in 2016.

The BOJ ended its radical yield curve control policy for Japanese sovereign bonds, which aimed to control longer-term interest rates by buying and selling bonds as needed.

The central bank will continue purchasing government bonds in the same amount as before, which is approximately 6 trillion yen per month.

If long-term interest rates rise quickly, the market may respond with "nimble" actions such as increased purchases of JGBs and fixed-rate JGBs.

The BOJ announced that it would stop buying exchange-traded funds and Japan real estate investment trusts (J-REITS) as part of its scaling back of radical asset purchases and quantitative easing. Additionally, the central bank pledged to gradually reduce its purchases of commercial paper and corporate bonds, with the goal of ending this practice within a year.

The withdrawal of monetary easing measures in Japan marks a significant shift and represents a sharp retreat from one of the most aggressive monetary easing exercises globally, aimed at reviving the Japanese economy from its deflationary cycle.

The Japanese yen weakened to as much as 149.92 against the greenback, while the stock index fluctuated between gains and losses following the BOJ decision. Additionally, yields on the 10-year and 30-year JGBs decreased.

Over the past week, financial markets have shifted in response to local Japanese news reports and preliminary wage negotiation results, which have fueled speculation that the BOJ may normalize rates a month earlier than expected, prior to its April meeting.

Inflation target in sight

Despite "core core inflation" surpassing its 2% target for over a year, the BOJ remained unchanged in its ultra-loose monetary policy stance, as policymakers believed that price increases were mainly due to imports.

The Bank of Japan anticipates that an increase in salaries will result in a virtuous cycle, with inflation being driven by domestic demand.

The BOJ stated that services prices have increased moderately, partly because of the moderate wage increases observed so far.

The Bank believes that the virtuous cycle between wages and prices has become more stable, and it is confident that the prices stability target will be achieved sustainably and steadily by the end of the January 2024 outlook report.

Japan Inc and its unionized workers have reached a 3.7% increase in base pay during ongoing "shunto" spring wage negotiations, according to Rengo, Japan's largest federation of trade unions, in their first provisional update on Friday.

This year's gains are even more impressive than the previous year's, which saw the steepest increase in three decades.

This is a developing story. Please check for updates.