All eyes are to be on the Bank of Japan (BOJ) when it sets policy tomorrow, as Governor Kazuo Ueda continues to inch toward ending the world’s last negative interest-rate regime.
It is unlikely to happen this time. People familiar with the matter said that Japanese authorities are not in a hurry to move while they await hard evidence of sustainable inflation.
BOJ watchers can therefore be expected to scour the statement and comments by Ueda for hints on the outlook for wage hikes and the prospects for better pay spurring spending and demand-led inflation.
Photo: Reuters
Any bullish rumblings would underpin growing expectations that the BOJ would raise its rate no later than April, as predicted by two-thirds of economists surveyed by Bloomberg earlier this month.
“We have argued that Ueda would move gingerly toward exiting the stimulus program he inherited, using a policy review and deliberate signaling to prepare the market well in advance. This process has clearly begun — but is a long way from over,” Bloomberg Economics senior Japan economist Taro Kimura said.
On the surface, the BOJ’s mission might seem a little awkward after the US Federal Reserve telegraphed rate cuts next year.
It is important to remember that the BOJ has no intention of introducing restrictive settings. If and when Ueda ends the negative rate, the governor would emphasize that policy remains broadly stimulative.
However, there has been increased speculation it could happen next month after Ueda said his job could become “more challenging” from year-end and following Deputy Governor Ryozo Himino’s hypothesis for what might happen if indeed rates go positive.
All Nippon Asset Management Co chief strategist Chotaro Morita believes that the BOJ is considering lifting negative interest rates next month.
The BOJ focus on spring wage negotiations means that it will raise rates “around January to April no matter what anyone thinks,” said Morita, who was ranked No. 1 for bonds in the Nikkei Veritas analyst rankings for six consecutive years through 2022. “It is clear that the BOJ is considering lifting the policy in January” to ensure it has flexibility in the future, he said.
The central bank is in the midst of its last monetary policy meeting of this year, with its decision due tomorrow. A majority of forecasters expect the BOJ would end the world’s last negative rate regime by April, according to a Bloomberg survey.
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