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In a historic move, the Bank of Japan has raised borrowing costs for the first time since 2007, marking the end of an era of negative interest rates. This decision, led by BoJ governor Kazuo Ueda, marks a significant departure from the ultra-loose monetary policies implemented over the past decade to combat deflation in Japan.
Following a 7-2 majority vote, the BoJ announced its intention to guide the overnight interest rate to remain within a range of about zero to 0.1 per cent, discontinuing the use of negative rates as a monetary policy tool. Previously, the benchmark rate had been set at minus 0.1 per cent.
The shift away from negative interest rates, adopted in 2016 to stimulate bank lending and consumer spending, is expected to reshape global investment flows as domestic yields become more attractive to Japanese investors. The move comes amid signs of broader economic change in Japan, including the largest pay rise for workers at major companies since 1991, indicating growing confidence in mild inflation persisting.
Market reactions were modest, with the yen weakening by 0.8 per cent against the US dollar and stock indexes such as the Nikkei 225 and Topix closing slightly higher on news of the announcement. However, despite the return to positive interest rates, BoJ officials have cautioned that this initial increase does not necessarily signal further hikes in the near future, citing concerns over inflation being well beyond its peak and ongoing economic uncertainties.
In addition to ending negative interest rates, the BoJ also removed its yield curve controls, a policy aimed at capping yields on 10-year Japanese government bonds. While maintaining its monthly purchases of Japanese government bonds, the BoJ announced the discontinuation of purchases of exchange-traded funds and Japanese real estate investment trusts.
In comments emailed to journalists, Chris Scicluna, head of research at Daiwa Capital Markets Europe said today’s decision is “a baby step that should have minimal impact on the real economy, and the BoJ has reassured markets that it will maintain an accommodative stance. We’re highly unlikely to see a series of aggressive rate hikes and Japanese rates will remain well below levels in other major markets for the foreseeable future.”
He added: “The BoJ has made clear that it will continue with its bond purchases for a while to come and is prepared to increase them if necessary, which is one reason why the market has treated today’s announcement as relatively dovish. However, this is a turning point; the crisis-era monetary policy in Japan is finally coming to an end.”
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UK merchant bank Close Brothers has announced a £400mn plan to bolster its capital position as it braces for the potential fallout from a regulatory investigation into motor financing mis-selling. Analysts estimate that the inquiry could impose significant costs on the UK banking sector, with estimates ranging up to £16bn.
As reported by the Financial Times, Close Brothers’ shares have tumbled nearly 60 per cent since the Financial Conduct Authority’s January announcement of its investigation into discretionary commissions on motor financing deals to UK consumers dating back a decade, citing concerns over inflated interest rates.
Close Brothers, which includes Winterflood Securities and an asset management division, holds the highest exposure to motor finance relative to its gross loan book, accounting for 22 per cent of loans as of 2021, according to Fitch analysts. Royal Bank of Canada analysts estimate that Close Brothers could incur a potential £250mn redress bill.
The 146-year-old institution suspended its dividend last month due to uncertainty stemming from the inquiry, with plans to reconsider its reinstatement in 2025 following the conclusion of the FCA’s investigation and assessment of its financial implications.
Meanwhile, Lloyds Bank, owner of Black Horse, the UK’s largest car finance provider, disclosed in February that it had set aside £450mn to cover potential costs linked to the investigation.
Despite these challenges, Close Brothers reported a £93.8mn operating profit for the six months ending in January, a significant improvement from the previous year, when it incurred a £115mn impairment charge associated with its now-defunct legal funding specialist, Novitas Loans.
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Two investment advisers, Toronto-based Delphia and San Francisco-based Global Predictions, have settled charges with the U.S. Securities and Exchange Commission for making false and misleading statements regarding their use of artificial intelligence.
Both companies agreed to pay a total of $400,000 in charges related to “AI washing”, with neither company admitting or denying any wrongdoing, the SEC said in a statement.
US regulators have intensified their scrutiny of AI, with the SEC cracking down on companies misrepresenting their use of the technology. In a speech at Yale Law School in February, Gary Gensler, chair of the SEC, cautioned companies against AI washing in their claims about the technology.
The SEC’s investigation found that Delphia made false and misleading statements from 2019 to 2023 in SEC filings, press releases and on its website regarding its use of AI and machine learning. Similarly, Global Predictions was cited for making false and misleading claims about AI in 2023 on its website and social media platforms.
Gurbir Grewal, director of the SEC’s division of enforcement said: “We’ve seen time and again that when new technologies emerge, they can generate excitement among investors, but also false claims by those purporting to utilise them.”
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Wall Street’s average cash bonus pay-out dipped by 2 per cent in 2023 to $176,500, despite a 1.8 per cent increase in industry profits, according to an estimate by New York State comptroller Thomas DiNapoli.
According to Reuters, the industry’s total bonus pool for 2023 stood at $33.8bn, compared to the record $42.7bn in 2021. DiNapoli attributes the decline to market volatility and the influx of new entrants into the securities workforce.
New York’s securities industry significantly contributes to state and city tax revenues, accounting for approximately 27 per cent of the state’s and 7 per cent of the city’s annual tax collections. Employment in the sector rose to 198,500 in 2023, despite major US banks globally cutting more than 23,000 jobs. According to the comptroller’s report, approximately one in 11 jobs in New York City is associated with the financial sector.
