The Bank of Japan has raised its key interest rate, becoming the last central bank in the world to abandon its negative interest rate policy.
Alex Kuptsikevich, a senior analyst at FxPro, noted: The Bank of Japan has raised its interest rate from -0.1% to between 0.0% and 0.1%. The central bank will charge a fee of 0.1% on the balance sheets of commercial banks, marking the first time it has done so since 2016. The Bank of Japan has also refused to further purchase real estate ETFs and trust funds, and has declined to control the yield curve. However, the bank currently intends to maintain the purchase of government bonds at "roughly the same level".
Ironically, the last time Japan raised interest rates began in 2006, with the last (and second) hike occurring in February 2007, just six months before the Federal Reserve's first rate cut. In other words, this move is belated, at a time when central banks around the world were on the verge of reversing policy. Now, this discordance is even more apparent, with Japan's March interest rate hike occurring three months before the anticipated rate cut by the Federal Reserve.
The reason for the increase in wages is that unions agree this is the most significant wage growth in over 30 years, with inflation rates exceeding the 2% target for the past 22 months.
Interestingly, the market's reaction was a depreciation of the yen as interest rates began to rise last week. The US dollar rose about 1% against the yen following the announcement, and 2% higher from last week's lows, hard to interpret as a buy-sell-fact response. At the current level of 150.50, it's near the highs of February, almost negating all gains speculated from the interest rate hikes.
But the technical situation is rather straightforward, suggesting further upside. The dip from the end of February to the low in March has stalled near the 200-day moving average, with the rise from December's lows to last month's highs nearing 61.8%.
If the US dollar breaks above the previous high near 151.0 against the yen, it will trigger a bullish move to 157.55 (161.8% of the initial rise). This level also aligns with the high point of this currency pair in 1990.
