The End Of Japan’s Negative Interest Rate Policy: What It Means For Investors

Japan is the world’s third-largest economy, and as such, the Japanese Yen is one of the most traded currencies globally.

As a result, Japan’s monetary policy significantly impacts investors worldwide. For years, Japan’s economy has struggled with deflation – or falling prices – and had negative interest rates from 2016 until earlier this year.

However, in March 2024, the Bank of Japan (BOJ) raised interest rates for the first time in 17 years, marking an important exit from negative rate territory.

By moving its short-term interest rate from -0.1% to a range of 0-0.1%, the BOJ signalled its confidence that the recent inflation in Japan’s economy could be here to stay.

But what does the end of Japan’s negative interest rate policy mean for investors?

Potential For Riskier Investment Assets To Perform Well
It suggests the potential for riskier investment assets to perform well.

One of the biggest issues the Japanese market has faced over the past three decades has been deflation, which has resulted in rock-bottom yields for Japanese Government Bonds (JGBs).

For many years, JGBs’ perceived safety had the unintended consequence of attracting the savings and investment dollars of Japan’s ageing population. Consequently, the country’s stock market languished, never coming close to the previous highs it hit during the 1989 bubble.

​Yet, with the exit from negative rates, Japan’s stock market has become much more attractive for local and international investors. The Nikkei 225 Index – Japan’s main stock market benchmark – hit an all-time high in February 2024, surpassing the previous peak set in 1989.