Photo/Illutration The Bank of Japan head office in Tokyo's Chuo Ward (Asahi Shimbun file photo)

The Bank of Japan ended 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.

BART WAKABAYASHI, TOKYO BRANCH MANAGER, STATE STREET

“It’s a moment in history! But having said that, dollar/yen has only moved 30 points, so it’s a classic ‘buy the rumor, sell the fact’. I don’t think the BOJ was going for the shock and awe approach this time.

“They are doing what they said they are going to do... essentially we’re a normal country!

“How does this impact households locally and their spending power - I think that’s going to be the next big discussion and with an eye to that I don’t think the BOJ can do anything beyond what they’ve announced.”

NORIHIRO YAMAGUCHI, SENIOR ECONOMIST, OXFORD ECONOMICS, TOKYO

“There were no surprises so far. It’s all been in line with the market consensus, considering the multiple leaks seen in the local media lately.

“For the time being, I expect equity prices to increase with the uncertainty gone surrounding the meeting. The decision to maintain the ETF and REIT holding amounts could even be an upside surprise.

“Yields are likely to stay at current levels given that there were no surprises in the rate decision: YCC abolishment and continuation in QE.”

DWYFOR EVANS, HEAD OF APAC MACRO STRATEGY, STATE STREET GLOBAL MARKETS, HONG KONG

“The Bank of Japan has finally adjusted its policy rate from negative to a 0-0.1% range, while scrapping yield curve control in a dual-pronged policy adjustment. As a concession to fears over a rise in long-term rates, the bank will continue JGB purchases in the same amounts as previously, although it acknowledged that short-term rates will be the primary policy tool. Continued JGB buying, ostensibly to cap yields, limits support for the Japanese yen, which remains sensitive to relative rates.”

HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO

“As widely expected, the BOJ scrapped negative interest rate policy. It has also begun to normalize monetary policy, including by eliminating the YCC.

“The decision is undoubtedly a historic turning point. This means that the Japanese economy is entering an inflationary economy and that interest rates may be raised gradually in the near future.”

FREDERIC NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG

“The BOJ today took its first, tentative step towards policy normalization. The elimination of negative interest rates in particular signals the BOJ’s confidence that Japan has emerged from the grip of deflation. The plunge in the value of the yen and structural changes in the labor market are primarily responsible for the pick-up in inflation.”

“Further tweaks to the BOJ’s monetary policy, including the removal of yield curve control and amended guidelines for asset purchases, will have little direct impact on the central bank’s monetary stance in the near term, but the moves signal a first step towards policy normalization. The big question is what happens next. Likely, the BoJ will find that it is getting “stuck at zero,” being unable to lift short-term interest rates meaningfully further in the coming quarters.”

PENG FONG NG, HEAD OF ASIA CREDIT, SCHRODERS, SINGAPORE

“The concerns about normalization of BOJ’s policy are very different from those of a U.S. bank. For example, according to one bank we spoke to, the domestic Japanese loan book is about 7x its domestic government bonds book, and the duration is 1+ years. It’s therefore unlike the past, whereby in perhaps the U.S., certain small banks would’ve loaded up on 20-30 years, and it’s a big chunk of the asset book. We’ve seen major entities in Japan being prepared for that already and have shortened duration significantly… so, the mark-to-market, and potential impact on capital, will be a lot lower.”

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