At its financial policy decision meeting on September 21-22, the Bank of Japan decided to keep its massive monetary easing policy in place. On September 21, 2018, the Federal Reserve Board (FRB) of the United States decided to dramatically increase interest rates by 0.75%, marking the third consecutive increase of this magnitude. The gap between the interest rates on Japanese 2-year government bonds and U.S. 2-year treasury bonds has widened to its highest level in 15 years as a result of diverging financial policies in the two countries. As a result, the value of the yen plummeted, and for the first time in 24 years, the Bank of Japan intervened in the currency market by purchasing yen to stabilize the exchange rate. Similar to the ECB’s announcement on the 22nd, the Swiss National Bank has ended its negative interest rate policy. The Bank of Japan is the only major central bank in the world to maintain a negative policy rate.
At a press conference held in the afternoon of September 22 at the Bank of Japan headquarters, President Haruhiko Kuroda stated categorically, “There is no plan to raise interest rates at this time.”
The Bank of Japan has kept long-term interest rates around 0% and short-term interest rates at -0.1% as part of its monetary policy framework based on long- and short-term interest rate operations (yield curve control, YCC). Japanese economic growth has continued, but it has not yet returned to pre-new crown crisis levels. At his press conference, President Kuroda reaffirmed his belief that “the economy is recovering, and it is appropriate to continue to maintain monetary easing.” The Federal Reserve, in contrast to the Bank of Japan, has decided to keep sharply increasing interest rates in an effort to rein in inflation. The induction goal for the Federal Funds (FF) rate in the United States, a measure of short-term interest rates, is 3%. The United States ended its zero-interest-rate policy in March, and since then, interest rates have increased by 3 percent. Monetary policy shifts make direct comparisons difficult, but this is the first time in about 41 1/2 years that FF rates have risen this dramatically. There was also consensus at the recent Fed meeting that the median policy rate would increase to 4.4% by the end of 2022. Very likely, the Fed will raise rates by 0.5% in December and 0.75% in November. Up from 3.8% in the prior forecast, the end-of-2023 benchmark interest rate forecast is now 4.6%. (June). Since October 2007, it has reached a new high not seen in nearly 16 years. As 2024 approaches, we anticipate the Fed will begin cutting interest rates.