Investing.com-- While the Bank of Japan raised interest rates for the first time in 17 years on Tuesday and signaled an end to its negative rates and yield curve control policies, ANZ analysts said that the bank will need much more convincing to hike rates further.
The BOJ raised short-term rates by 0.1% to 0.0%, and said it will set an interest rate of 0.1% to current account balances held by financial institutions at the bank.
ANZ analysts said the trigger for the move appeared to be signs of higher wages in Japan, particularly from the Shunto wage negotiations between major employers and labor unions.
But analysts said that Tuesday’s move was largely just the BOJ moving away from its unconventional monetary stance, and that the central bank needed much more convincing that inflation was truly moving towards its 2% target.
More hikes from the BOJ to take time, expect dovish signals from Ueda
ANZ analysts said that while Tuesday’s move did signal an end to some of the BOJ’s ultra-dovish policies, any more tightening will take much more time.
They also said that Governor Kazuo Ueda was likely to strike a dovish tone at an upcoming conference later in the day.
“We expect Ueda to provide dovish guidance on rates in his press conference later this afternoon. He has previously said that monetary policy would remain accommodative for some time when (negative interest rate policy) ends, and he has also ruled out a series of hikes,” ANZ analysts said in a note.
The BOJ said it will stop most asset purchases from the open market, and wind down its buying of commercial paper and notes within one year.
But the central bank signaled that Japanese monetary conditions will remain largely accommodative for “the time being,” and that it will continue to buy Japanese government bonds at its current pace.
Nikkei rises, USDJPY surges after BOJ decision
Market reaction also showed investors pricing in a largely dovish outlook for the BOJ. The Nikkei 225 stock index reversed early losses and traded up 0.6%, while the Japanese yen weakened sharply, with the USDJPY pair surging 0.8% and past the key 150 level.