Goldman Sachs: Japan Will Abandon Negative Interest Rates

[Asia Economy Reporter Haeyoung Kwon] According to Bloomberg News on the 21st (local time), Goldman Sachs has forecasted that the Bank of Japan (BOJ) will abandon its 'negative interest rate' policy, which it has maintained for nearly seven years, following the revision of its monetary easing stance the previous day.

According to Bloomberg, Naohiko Baba, a Japan economist at Goldman Sachs, stated, "The BOJ is increasingly likely to abandon the negative interest rate policy by emphasizing the need to strengthen the market function of 10-year Japanese Government Bonds (JGBs)." He added, "This will be a measure to reinforce the sustainability of the BOJ's Yield Curve Control (YCC) policy, similar to the policy revision implemented the previous day."

[Image source=Yonhap News]

The BOJ has been implementing the Yield Curve Control (YCC) policy to maintain the 10-year government bond yield around 0.25%. The short-term interest rate was set at -0.1% in January 2016, and the negative interest rate policy has been maintained for nearly seven years. However, amid tightening moves by major global economies, Japan's ultra-low interest rate policy has caused a severe depreciation of the yen and a sharp rise in inflation, prompting the BOJ to widen the fluctuation range of long-term government bond yields from ±0.25% to ±0.50% the previous day.

BOJ Governor Haruhiko Kuroda drew a line by saying, "This is not an interest rate hike," but the market is interpreting it as a de facto rate increase. Following the BOJ's surprise announcement and the reaffirmation of global tightening moves, yields on major countries' government bonds, including the US 10-year Treasury, rose simultaneously the previous day. As of 11:12 a.m. that day, the 10-year US Treasury yield was trading at 3.7177%, up 2.78 basis points (1bp = 0.1 percentage point) from the previous session.