According to media reports, four insiders familiar with the Bank of Japan have revealed that more and more policy makers are accepting the idea of ending negative interest rate policies this month, as they expect Japanese companies to promise significant salary increases in annual salary negotiations.
Sources also indicate that after ending negative interest rates, the Bank of Japan may thoroughly reform its large-scale stimulus plan, including the Yield Curve Control (YCC) policy. But they emphasized that the 9-member policy committee of Bank of Japan has not yet decided whether to "pull the trigger" in March or April, and the difference between sooner or later is just a fleeting thought.
Bank of Japan short-term interest rate
The Bank of Japan is scheduled to hold a meeting from March 18th to 19th, and the previous week, March 13th, will usher in the spring labor management negotiations with a concentrated response day. Sources say that the potential significant salary increase by Japanese large corporations may increase the likelihood of taking action in March, as their decisions typically set the tone for other small companies.
One of the sources said that if the results of spring wage negotiations are strong, the Bank of Japan may not need to wait until April, and another source also agrees with this view. But some people also suggest that the policy committee may prefer to wait until next month's short-term investigation and the release of the branch salary outlook report before making a decision in April.
Mark Dowding, Chief Investment Officer of RBC BlueBay Asset Management's fixed income division, predicts that the salary increase rate in 2024 will be between 4.5% and 5%. Dowding stated that the Bank of Japan will lift negative interest rates by at least 10 basis points in March based on wage increases.
Yesterday, Shunko Nakagawa, a member of the 9-member Policy Committee, stated in a speech that Japan is currently taking concrete steps towards the 2% price stability target and can look forward to achieving a virtuous cycle of wages and prices. At the end of last month, Takada Chuang also mentioned that the goal of stabilizing the inflation rate at 2% through wage increases has finally reached a stage where it is expected to be achieved.
In 2016, the Bank of Japan lowered its benchmark interest rate, the short-term interest rate, from below zero to a historic low of -0.1% and has continued to this day. Due to increasing signs in recent times suggesting that the bank will soon end negative interest rates, the exchange rate of the US dollar against the Japanese yen has significantly declined, falling nearly 300 points this week, with the latest report being 147.22.
The source also revealed that once the short-term interest rate of the central bank leaves the negative area, the bank is likely to give up the goal of anchoring the yield of 10-year treasury bond bonds at around 0%. They added that in order to avoid a sudden surge in long-term interest rates, the bank may promise to intervene in the market when necessary or provide guidance on continuing to purchase bonds.