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Bank of Japan officials are increasingly confident that the economy is strong enough to attempt an imminent exit from the world’s remaining negative interest rates.
The central bank is becoming more bullish on the outlook for inflation as wages rise and prices rise in the service sector, and within the Bank of Japan there is a possibility that the ultra-easy policy that has been in place since 2016 will end sooner rather than later. There is a growing belief that As March.
In a widely anticipated decision, the Bank of Japan kept overnight interest rates unchanged at -0.1% at its most recent policy meeting in January. The bank’s governor, Kazuo Ueda, gave little indication of when the bank would raise interest rates for the first time since 2007.
However, a subtle but important change appeared in the Bank of Japan’s quarterly economic outlook report, which was released at the same time as the interest rate decision. In the letter, the Bank of Japan added new language stating that the “likelihood” of achieving its 2% inflation target “continues to rise gradually,” the strongest hint that policy normalization is near. provided.
Bank of Japan officials said the language was added to convey the bank’s intentions to financial markets and make clear it has a stronger outlook for the economy. The official said, “I can’t say when, but the economy is steadily moving in the direction of policy review.”
At last week’s press conference, Mr. Ueda said, “The extremely accommodative financial environment will continue for the time being,” and also made it clear that a cycle of rate hikes after the decision to end negative interest rates is not guaranteed.
Signals from the Bank of Japan included a warning that further economic data on prices and wages needed to be assessed. But central bank officials have also emphasized a more hawkish tone in their regular interactions with financial market participants.
“The fact that the Bank of Japan has added this line… the front page of the economic outlook sends a clear message that policy change is coming soon,” said UBS economist Masamichi Adachi, adding that the main scenario The policy change was still expected to occur in April, but did not rule out the possibility of a policy change in March.
Morgan Stanley MUFG and BNP Paribas said in published notes that interest rate hikes could occur in March.
Since the BOJ meeting, the yen has appreciated by about 1% against the dollar, and the yield on 10-year Japanese government bonds has risen to 0.7% from 0.6% before the BOJ decision. The strong yen would be consistent with the view that Japan may soon emerge from negative interest rates.
The summary of opinions from the most recent policy meeting also reflects growing confidence among Bank of Japan board members that economic conditions will support an exit from easing measures.
According to the summary published on January 31, one member said, “It appears that the conditions for policy revision, including the lifting of the negative interest rate policy, are being met,” and another said, “There is no discussion on lifting the negative interest rate policy.” We need to start,” he said. Current monetary policy needs to continue as achieving the target becomes more realistic. ”
One member described the current situation as a “great opportunity” and warned that future policy changes by overseas central banks could reduce the Bank of Japan’s flexibility in reviewing its monetary policy.
With inflation receding around the world, expectations are rising that central banks such as the U.S. Federal Reserve and the European Central Bank will begin lowering interest rates before the end of the year. The timing of the policy change is unclear, with Fed Chairman Jerome Powell indicating on Wednesday that he would not start cutting rates in March.
Despite the Bank of Japan’s more bullish stance on the economy, Moody’s Analytics senior economist Stefan Anrik said consumer spending remains at 2021 levels and the latest data does not necessarily reflect the central bank’s view. He stated that there is no evidence that the
“The Bank of Japan is trying to prepare the runway for the next step, but if it waits too long, the statistics may continue to weaken and there may be no basis to justify normalization,” he said.
