A GROWING number of Bank of Japan policymakers are warming to the idea of ending negative interest rates this month on expectations of hefty pay hikes in this year’s annual wage negotiations, four sources familiar with its thinking said.
But an imminent policy shift is hardly a done deal as there is no consensus within the nine-member board on whether to pull the trigger at its upcoming March 18-19 meeting, or hold off at least until the subsequent meeting on April 25-26, they say.
Many BOJ policymakers are closely watching the outcome of big firms’ annual wage negotiations with unions on March 13, and the first survey results to be released by labour umbrella Rengo on March 15, to determine how soon to phase out their massive stimulus.
Significant pay hikes will likely heighten the chance of a March action, as the offers by big firms usually set the tone of those by smaller firms nationwide, the sources said on condition of anonymity due to the sensitivity of the matter.
The BOJ hopes that solid wage increases will coax consumers to spend more, boosting demand and prices after years of economic stagnation and deflation.
“If the spring wage negotiation outcome is strong, the BOJ may not necessarily need to wait until April,” one of the sources said.
But the BOJ may hold off until April if many board members prefer to wait for next month’s “tankan” business sentiment survey and the bank’s regional branch managers’ report on the nationwide wage outlook, before making a final decision, they said.
To keep inflation sustainably around 2 per cent, the BOJ guides short-term rates at -0.1 per cent and sets a 0 per cent target for the 10-year bond yield under a policy dubbed yield curve control (YCC).
Upon pulling short-term rates out of negative territory, the central bank is likely to ditch its 10-year bond yield target, the sources said.
To avoid an abrupt spike in long-term rates, the BOJ will likely commit to intervening in the market when needed to stem sharp rises, or offer guidance on the amount of government bonds it will keep buying, they said.
Japan’s Jiji news agency reported on Friday (Mar 8) the BOJ is considering replacing YCC with a new quantitative framework that will show in advance how much bonds it will buy in the future. REUTERS
