Remember this day. March 19, 2024, will be enshrined in the annals of monetary policy history.

This was the day the Bank of Japan exited the world’s last surviving negative rates regime, ended a long-running experiment with yield-curve control and concluded a risk-asset buying program, all in one fell swoop.

The long-awaited “virtuous cycle between wages and prices” is upon us, the bank said, in the statement, before expressing confidence that the 2% inflation target will be “achieved in a sustainable and stable manner” sometime towards the end of the projection period from the January outlook — so, sometime late next year I suppose.

Short-term rates were raised by 10bps, and will now be between 0% and 0.1%, as illustrated by the helpful before and after visual below.

Again: This is history. A historic hike. Amounting to 10 whole basis points. If you’re wondering about terminal, some observers reckon the peak to be around 0.5%. When (or if) the BoJ will get there is anybody’s guess.

As noted, and as widely telegraphed, including by Nikkei several hours before Tuesday’s decision, yield-curve control is now officially over in Japan. Kazuo Ueda tweaked it twice (in July and October) since taking the reins. Now it’s history.

That doesn’t mean the BoJ will stop buying bonds, though. It just means purchases’ll be conducted with the aim of preventing disorderly selloffs, rather than in defense of any ceiling.

The statement was clear that ad hoc, fixed-rate purchases can be conducted at any time in the event of an unwanted, “rapid rise in long-term rates.”

I should note: The BoJ was never forced out of YCC. Year in and year out, critics insisted the market would one day break the bank, so to speak. The RBA’s disastrous YCC exit was billed by some as a preview of the fate that’d eventually befall Japan. It never happened. The BoJ exited by choice. On their terms. And on their timeline.

The vote split was 7-2 on the rate hike and 8-1 on YCC. The vote to end ETF- and REIT-buying was unanimous.

The BoJ exits YCC the proud owner of half of all outstanding JGBs. The stock-buying left them with an equity portfolio worth around a quarter trillion dollars as of end-Q3 2023. They have a lot of unrealized gains on that massive position.

The deciding factor in today’s decision (i.e., why Ueda didn’t hold off until next month) was last week’s preliminary tally of pay increases from Rengo, the country’s largest union group, which said workers secured a 5.28% annual pay hike, the most in decades.

As I put it Sunday while previewing this week’s BoJ meeting, wage growth in Japan has some momentum. Enough momentum, policymakers believe, to underpin a self-fulfilling prophecy that banishes the deflation demon once and for all.

It’ll be years before anyone can say, definitively, if the BoJ was correct to suggest deflation’s no longer a pressing threat. They expressed confidence on Tuesday. “It is highly likely that wages will continue to increase steadily this year [and] anecdotal information suggests a wide range of firms have maintained their stance of raising wages,” the bank said.

The new statement bid a fond farewell to negative rates and YCC which “fulfilled their roles.” All good things must come to an end.

Naturally, the BoJ indicated that notwithstanding today’s announcements, policy and financial conditions will remain accommodative in perpetuity.