The
Bank
of
Japan
has
ended
a
long
period
of
speculation
by
finally
raising
interest
rates
for
the
first
time
in
17
years.
The
move
comes
as
pressure
grows
on
Western
central
banks
to
cut
policy
rates
after
a
series
of
aggressive
rate
hikes.
The
short-term
policy
rate
was
raised
from
-0.1%
to
0%
to
0.1%,
not
a
massive
change
in
technical
terms,
but
a
symbolic
one
as
it
marks
the
end
of
the
era
of
negative
rates.
The
controversial
“yield
curve
control”
programme
was
also
ended,
as
well
as
the
purchase
of
ETFs
and
real
estate
investment
trusts
by
the
central
bank.
Japan
Gets
Inflation
Too
After
many
years
of
battling
deflation,
Japan’s
inflation
is
now
trending
above
the
2%
target,
helped
by
some
of
the
first
pay
rises
Japanese
workers
have
received
in
decades.
Domestic
companies
have
also
been
able
to
pass
on
cost
increases
to
consumers
after
a
long
period
of
stable
and
falling
prices.
After
the
Bank
of
Japan’s
expected
move,
Japan
stock
market
indices
rose
modestly,
following
a
period
of
recent
record
highs.
The
Morningstar
Japan
index
has
risen
nearly
9%
in
the
year
to
date and
is
up
124%
in
10
years.
Despite
the
interest
rate
increase,
the
yen
actually
fell
against
major
currencies,
with
the
USD/JPY
rate
moving
above
¥150
and
GBP/JPY
rising
above
¥190.
Swissquote
Bank
senior
analyst
Ipek
Ozkardeskaya
published
a
note
this
morning
titled
“where
are
the
yen
bulls?”.
The
long-awaited
BoJ
move
was
supposed
to
reverse
the
yen’s
fortunes
–
and
certainly
many
currency
traders
back
the
idea
of
a
yen
bounce
this
year
–
but
today
it
hasn’t
had
the
expected
impact
on
the
currency.
“The
price
action
suggests
a
‘one
and
done’
action
from
the
BoJ,”
said
Ozkardeskaya.
“Note
that
today’s
decision
was
supposed
to
send
the yen on
a
rising
path.
At
this
point,
I
don’t
see
what
would
make
long
the yen the
best
trade
of
the
year.”
Nikko
Asset
Management
global
strategist
and
managing
director
Naomi
Fink
reinforced
the
idea
that
markets
are
not
expecting
more
hikes
from
the
BoJ,
which
could
explain
some
of
the
currency
weakness.
“We
are
now
in
wait-and-see
mode,
particularly
given
‘uncertainty’
coming
not
only
from
Japan,
but
also
from
overseas
economies,”
she
said.
“As
such,
there
remains
no
immediate
catalyst
for
BOJ
to
continue
hiking
–
evidence
of
real
income
growth,
ongoing
productivity-enhancing
investment
and
positive
sentiment
from
corporates,
recovery
in
domestic
consumption
remain
to
be
seen
before
any
next
move,
given
reflation
is
happening
in
a
manner
conducive
to
withdrawing
stimulus
very
deliberately.”
Shinzo
Abe’s
Economic
Legacy
Howe
Chung
Wan, managing
director
and
head
of
Asian
fixed
income,
at
Principal
Asset
Management,
thinks
the
interest
rate
change
has
been
a
long
time
in
coming,
and
represents
the
fruits
of
the
changes
initiated
by
the
late
prime
minister
Shinzo
Abe
known
as
“Abenomics”.
“I
believe
Japan
has
been
building
to
this
moment
–
it’s
been
more
than
a
decade
since
‘Abenomics’
was
introduced
to
combat
two
decades
of
a
deflationary
environment.
“Now,
this
comprehensive
policy
package
covering
monetary,
fiscal,
and
social,
labour,
and
economic
reforms,
has
created
a
ripe
environment
for
Japan
to
begin
to
recover.
It’s
important
to
remember,
however,
that
a
large
portion
of
the
working
population
has
never
experienced
a
high-growth
Japan,
so
confidence
will
take
time
to
build.”
Japan’s
(Slow)
Corporate
Governance
Revolution
One
of
Abe’s
key
reforms
was
to
corporate
governance,
changes
which
expert
say
have
driven
some
of
the
stock
market
gains
of
the
last
few
years.
Some
overseas
investors
have
lost
patience
with
the
many
false
dawns
in
recent
years.
Japan’s
stock
market
rally
has
lacked
an
obvious
narrative
hook
such
as
the
current
AI
boom
in
the
United
States.
But
Morningstar’s
Leslie
Norton
recently
argued
that
the
elevated
stock
market
values
can
be
sustained.
The
prevailing
narrative
in
the
high
inflation
era
is
that
Japan
is
somehow
immune
from
global
price
pressures,
that
its
economy
is
unique
and
on
a
different
track
to
the
West.
Discussing
the
interest
rate
hike,
David
Mitchinson,
fund
manager
at
Zennor
Asset
Management,
argues
that
the
interrelated
nature
of
capital
markets
means
the
BoJ’s
move
will
have
a
knock-on
effect
elsewhere:
“This
is
a
structural
change
that
is
very
important
for
Japan
and
for
global
capital
market
flows.
The
US,
for
instance,
has
been
able
to
rely
on
large
Japanese
surplus
savings
to
fund
the
deficit.
With
rates
in
Japan
now
rising
and
with
elevated
hedging
costs
this
is
increasingly
unattractive.
Will
these
flows
reverse?
What
will
the
impact
be
on
US
rates?”
The
Federal
Reserve
meets
this
week,
along
with
the
Bank
of
England,
and
both
are
expected
to
hold
interest
rates.
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