By Leika Kihara
TOKYO (Reuters) — The Bank of Japan is expected to end eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, making a historic shift away from a focus of reflating growth with decades of massive monetary stimulus.
While the move would mark Japan's first interest rate hike in 17 years, it would still keep interest rates stuck around zero as a fragile economic recovery forces the central bank to go slow in any further rise in borrowing costs, analysts say.
The move would make Japan the last central bank to ditch negative rates and end an era in which policymakers around the world sought to prop up growth through cheap money and unconventional monetary tools.
While a majority of economists polled earlier this month had expected the BOJ to wait until April for it to end negative rates, sources say bigger-than-expected pay hikes announced by major firms last week now heighten the chance the bank will make that decision at its two-day meeting ending on Tuesday.
If the nine-member board believes the conditions are right, the BOJ will set the overnight call rate as its new target and guide it in a range of 0-0.1% by paying 0.1% interest on excess reserves financial institutions park with the central bank.
«What we expect overall is a return to a much more simple policy framework that focuses on targeting the front end» of the yield curve, said Izumi Devalier, head of Japan economics at BofA Securities.
«This would be the first rate hike in 17 years, so it has a lot of symbolic significance. But the actual impact on the economy is very small,» she said, noting the BOJ will likely maintain its resolve to keep monetary conditions ultra-loose.
Upon exiting its negative rate
Read more on investing.com