In a significant policy shift that marks the end of an era, more than 80% of economists surveyed by Reuters anticipate the Bank of Japan (BOJ) will terminate its eight-year-long negative interest rate policy come April. This move positions the BOJ away from its long-standing role as a global monetary policy outlier. The transition is notably timed just before several major central banks are expected to initiate rate cuts, highlighting a pivotal moment in the global economic landscape.
Expectations for Yield Curve Control (YCC) and Monetary Policy
A similarly large fraction of economists, 76%, expect the BOJ to also conclude its yield curve control (YCC) strategy during the same period, signaling the end of an extensive phase of ultra-loose monetary policy. Nearly all respondents agree that this decision will coincide with a significant shift in Japan’s economic management, occurring just as other major central banks begin to scale back their rates.
Despite Japan’s economic downturn, with the country slipping into recession, the BOJ appears set to reverse its negative interest rates in the upcoming months. This stance is supported by previous reports from Reuters. In a poll conducted from February 15 to 20, 83% (25 out of 30 economists) predicted the central bank will abandon its -0.1% short-term deposit rate in April, a policy in place since January 2016.
Influential Factors for BOJ’s April Decision:
- Labor-Management Wage Negotiations: The decision in April is expected to be influenced by the outcomes of labor-management wage discussions among large firms.
- Wage Trends in Smaller Firms: Insights from BOJ branch managers about wage trends in smaller firms will also be a crucial consideration.
Timing and Policy Shifts
Diverse opinions emerged regarding the exact timing for ending negative rates, with some analysts suggesting March, one predicting June, and others foreseeing the shift as late as 2025 or beyond. The risk associated with delaying the policy adjustment is the potential to miss the opportune moment for change amidst increasing global uncertainties.
Mari Iwashita, from Daiwa Securities, highlighted the importance of timely action by the BOJ to align with the anticipated policy shifts of its global counterparts. This sense of urgency is reflected in the rising consensus, with 91% of economists now expecting the negative rate policy to conclude by year-end, an increase from 82% in January’s poll.
BOJ Governor Kazuo Ueda has, however, emphasized that Japan’s monetary conditions will remain accommodative, even after the bank moves away from negative rates.
Wage Growth and Economic Outlook
Economists are optimistic regarding wage growth in the coming fiscal year, predicting that increases at large Japanese firms will surpass this year’s 3.58%. This sentiment extends to small and mid-sized firms, where a significant rise in wage growth expectations has been noted compared to previous surveys.
Table: Predicted Wage Increases
| Firm Size | Predicted Wage Increase Range |
|---|---|
| Large Companies | 3.6% to 4.36% |
| Overall Business | 1.5% to 4.0% |
The expected policy reversal by the BOJ in April represents a critical juncture in Japan’s approach to economic management, mirroring broader shifts in the global monetary environment. As economists and policymakers alike watch for the outcomes of wage negotiations and other economic indicators, the BOJ’s forthcoming decisions will significantly influence Japan’s economic path amidst global challenges.
Featured image credit: MarsYu via iStock