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How the BOJ’s plan for an easy exit from negative rates unfolded

International NewsHow the BOJ's plan for an easy exit from negative rates unfolded
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Kathmandu | The Bank of Japan’s strategy for implementing policies more easily unraveled in December on a cloudy day when Governor Kazuo Ueda and two deputy governors convened at the bank’s headquarters in Tokyo.
Inflation was slowing more than anticipated, which complicated the central bank’s plan to end negative interest rates by March or April as outlined in the plan. Officials deliberated on two options.

The first option was to wait for indications of economic improvement and then proceed as planned. The second was to discontinue negative rates but refrain from further increases. Ultimately, MIT-trained Ueda opted for the second option, making Japan no longer the final country with negative interest rates, but falling short of the expected normalization and still facing years of near-zero rates that pressure the yen.

“With the economy lacking momentum, there was a growing feeling within the BOJ that inflation might not stay around 2% that long,” said a person familiar with the bank’s operations. “The BOJ probably realized that time was running short if they wanted to end negative rates.”
The decision was also complicated by differences between Ueda’s two deputies, as well as the governor’s wavering on the exit timing.

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“Given the sluggishness in the economy, there was a strong possibility that Japan would remain far from the 2% target for quite some time,” added the same source. “The concerns about the sluggishness in the economy were increasing, and if they wanted to end negative rates, they needed to act.”

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