Bank of Japan needs to move sooner to a new normal as current policy is 'very harmful', says strategist

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Japan needs to transition sooner to a "new normal" as the country's current ultra low interest rate policy regime has been "inappropriate" and "very harmful" for the economy, according to a strategist. Central banks around the world have raised rates aggressively to rein in inflation, but Japan has kept its benchmark rate at -0.1% since 2016. The sooner the BOJ moves to a "more normal structure and let bond markets, equity markets do their work that they need to do," the better it will be for financial markets, Kevin Hebner, global investment strategist at TD Epoch, told CNBC's "Squawk Box Asia" on Monday. On Friday, the Bank of Japan kept its ultra low interest rates unchanged but shocked financial markets by loosening its yield curve control — or YCC. The central bank said it would offer to buy 10-year Japanese government bonds at 1.0% in fixed-rate operations, instead of the previous rate of 0.5%. This effectively expands its tolerance by a further 50 basis points, signaling the BOJ would let the 10-year yield rise to as much as 1.0%. "The type of policy they've had in place for a while now, it made sense in the mid 90s, late 90s," Hebner said. "It's been an inappropriate policy for the last 20 years. Japan hasn't had the same cyclical issues," he noted. "And when you have zero interest rates, it creates all sorts of distortions and dislocations that I think are very harmful." Moving away from negative interest rates would have far-reaching effects on the Japanese economy, from corporate investment to household savings. "Most importantly for equity investors the cost of capital is no longer zero," noted Hebner. "If you want to have companies creating value for the medium and longer term, you need the cost of capital to be realistic, and that hasn't been the case for 20 years."