Bank of Japan’s governor proposes ending negative interest rates, NHK reports, nears interest rate decision

Bank of Japan Governor Kazuo Ueda has proposed ending negative interest rates as chair of the policy-setting board, public broadcaster NHK reported on Tuesday.

The move would mark a historic shift away from a focus of reflating growth with decades of massive monetary stimulus.

An announcement on the policy decision will likely be made shortly.

While the reported move will be Japan's first interest rate hike in 17 years, it still keeps interest rates stuck around zero as a fragile economic recovery forces the central bank to go slow in any further rise in borrowing costs, analysts say.

The shift makes Japan the last central bank to exit negative rates and ends an era in which policymakers around the world sought to prop up growth through cheap money and unconventional monetary tools.

"This would be the first rate hike in 17 years, so it has a lot of symbolic significance," Izumi Devalier, head of Japan economics at BofA Securities, said.

"But the actual impact on the economy is very small," she said, noting the BOJ will likely maintain its resolve to keep monetary conditions loose. "We would not expect a substantial rise in funding costs or households mortgage rates."

With inflation having exceeded the BOJ's 2% target for well over a year, many market players had projected an end to negative interest rates either in March or April.

Under previous Governor Kuroda, the BOJ deployed a huge asset-buying programme in 2013, originally aimed at firing up inflation to a 2% target within roughly two years.

The central bank introduced negative rates and yield curve control (YCC) in 2016 as tepid inflation forced it to tweak its stimulus programme to a more sustainable one.

As the yen's sharp falls pushed up the cost of imports and heightened public criticism over the demerits of Japan's ultra-low interest rates, however, the BOJ last year tweaked YCC to relax its grip on long-term rates.