Similar to the Federal Reserve, the Bank of Japan has only two monetary policy meetings remaining this year, with interest rate decisions to be announced on October 31 and December 19, respectively. There is also an increasing amount of data and voices pointing to the hope that Japan's monetary policy makers will achieve a historic moment by the end of the year.
Former member of the Monetary Policy Committee of the Bank of Japan, Makoto Sakurai, announced on Wednesday that the Bank of Japan may lift its negative interest rate policy by the end of this year to adjust its "currently overly loose policy level." Given the current economic recovery situation, the Bank of Japan is likely to take action at any time.
(Since January 2016, Japan's policy interest rate has been maintained at -0.1%, source: tradingeconomics)
Sakurai Shinsei stated that under the leadership of new Governor Ishida and Nobunaga, the Bank of Japan appears cautious, but they are also steadily adopting policies at a faster than expected pace. Sakurai Shinzo served as a monetary policy commissar from 2016 to 2021, not only closely related to former president Toshiko Kuroda, but also had a good understanding of Watanabe. He successfully predicted this change before the Bank of Japan unexpectedly adjusted its yield curve control policy at the end of 2022.
Coincidentally, insiders also revealed on Wednesday that the Bank of Japan will raise its inflation forecast for this fiscal year (ending March 2024) from 2.5% to 3% in its economic forecast released at the end of the month. In addition, the Bank of Japan will also raise its inflation expectation for 2024 from 1.9% to above the policy target of 2%.
(Japan's inflation rate has been consistently above the 2% policy target for a year and a half, source: tradingeconomics)
In addition to official policy expectations, the salary growth rate of Japanese workers is also an important reference for the central bank to ensure that the inflation trend can continue. In addition to large companies like Uniqlo being able to offer significant salary increases, NHK reported today that Japan's largest union, the Japan Federation of Labor Unions, is planning to propose a 5% salary increase in labor negotiations next spring.
Sakurai further explained that, compared with policies such as raising the yield ceiling of ten-year treasury bond bonds, ending negative interest rates would not have too much impact on the real economy itself, but would only return the level of monetary easing to a more normal state. It should be noted that this viewpoint is also different from the mainstream market opinion. Sakurai believes that the current yield curve control policy has been relaxed to 100 basis points, and a further increase to 150 basis points may cause trouble to the Japanese financial system. However, simply ending negative interest rates has little impact on the yield curve.
However, considering the national conditions of Japan and the communication between the Bank of Japan and the market, Sakurai Cheng also stated that the specific time point for ending the negative interest rate policy may be in December, or even later.