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

The Bank of Japan announced March 19 it will end negative interest rates and review other ultra-loose monetary policies that have been in place for more than a decade to buoy the stagnant economy.

At a news conference following a two-day policy board meeting, BOJ Governor Kazuo Ueda said the 11-year-long “monetary easing in different dimensions,” adopted by his predecessor, Haruhiko Kuroda, “has fulfilled its role.”

The BOJ “assessed the virtuous cycle between wages and prices” and decided that the price stability target of 2 percent can be sustainably and stably achieved, it said in a statement.

The negative interest rates, introduced in February 2016, are a pillar of its unconventional monetary easing policies.

The central bank will raise short-term policy interest rates for the first time in 17 years.

Specifically, it will increase the uncollateralized overnight call rate--a rate commercial banks charge on loans to each other and a target for the BOJ’s money market operations--to a range of between 0.0 and 0.1 percent.

The BOJ will also raise its interest rate on part of the balance of current account deposits that commercial banks hold at the central bank from minus 0.1 percent to 0.1 percent.

The unconventional policy was aimed at encouraging banks to increase lending to businesses.

With interest rates below zero, banks had to pay interest to the BOJ if they placed a large amount of money in current account deposits at the central bank.

In addition, the BOJ will abolish a policy framework known as yield curve control designed to keep long-term interest rates low by purchasing government bonds.

The policy, adopted in September 2016 to promote capital expenditures and home purchases, was an unorthodox policy for the central bank of a major economy as long-term interest rates are determined, in principle, by supply and demand in bond markets.

The central bank will also stop purchasing exchange traded funds and real estate investment trusts called J-REIT, part of the large-scale monetary easing policies.

Speaking about the BOJ’s goal of the virtuous wage-price cycle, Ueda, who replaced Kuroda in April, said, “A solid wage increase is likely to materialize following last year.”

He had repeatedly said the central bank was closely watching the “shunto” spring labor offensive as a factor in deciding whether to end negative interest rates.

The wages of regular employees increased 5.28 percent, on average, compared with 3.80 percent the previous year, according to figures compiled on March 15 by Rengo (Japanese Trade Union Confederation).

While the policy switch is expected to affect households and businesses in the long run, Ueda downplayed any short-term impact.

“I think the accommodative environment will continue for the time being,” he told the news conference.

The BOJ said it plans to continue to purchase government bonds to prevent a spike in interest rates.

The short-term policy interest rate is linked to variable rates for housing loans and interest rates on short-term loans to companies.

The long-term interest rate, or the yield on the benchmark 10-year government bond, serves as a basis for fixed rates for housing loans.

About 70 percent of people who took out housing loans have chosen variable rate types.

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