Japan ends the world’s greatest monetary-policy experiment

On March 19th officials at the Bank of Japan (BoJ) announced that, with sustainable inflation of 2% “in sight”, they would scrap a suite of measures instituted to pull the economy out of its deflationary doldrums—marking the end of a radical experiment. The bank raised its interest-rate target on overnight loans for the first time since 2007, from between minus 0.1% and zero to between zero and 0.1%, becoming the last central bank to scrap its negative-interest-rate policy. It will also stop buying exchange-traded funds and abolish its yield-curve-control framework, a tool to cap long-term bond yields. Even so, the BoJ stressed that its stance would remain accommodative: the withdrawal of its most unconventional policies does not augur the beginning of a tightening cycle.

This shift reflects changes in the underlying condition of the Japanese economy. Inflation has been above the bank’s 2% target for 22 months. Recent annual negotiations between trade unions and large companies suggest wage growth of more than 5% for the first time in 33 years. “The BoJ has confirmed what many people have been suspecting: the Japanese economy has changed, it has gotten out of deflation,” says Hoshi Takeo of the University of Tokyo. That hardly means Japan is booming—consumption is weak and growth is anaemic. But the economy no longer requires an entire armoury of policies designed to raise inflation. When Ueda Kazuo, the BoJ’s governor, was asked what he would call his new framework, he said it did not require a special name. It was “normal” monetary policy.