BOJ's growing confidence in prices, wages point to end of negative interest rates

THE Bank of Japan’s (BOJ) governor and one in all its board members mentioned on Thursday (Mar 7) the economic system was transferring in the direction of the central financial institution’s 2 per cent inflation goal, in feedback that heightened market expectations of an imminent finish to adverse rates of interest.

The remarks got here as Japan’s largest commerce union group Rengo mentioned common wage hike demand hit 5.85 per cent for this yr, topping 5 per cent for the primary time in 30 years and heightening prospects of a broad-based pay rise that the BOJ set as a prerequisite for a stimulus exit.

BOJ board member Junko Nakagawa mentioned the nation’s intensifying labour shortages have been prodding extra firms to renew their apply of accelerating pay yearly, signalling conviction that circumstances for phasing out the financial institution’s huge stimulus have been falling into place.

“We can say that prospects for the economy to achieve a positive cycle of (rising) inflation and wages are in sight,” Nakagawa advised enterprise leaders within the southwest Japan metropolis of Matsue.

“There are clear signs of change in how companies set wages. Japan is moving steadily towards sustainably and stably achieving our 2 per cent inflation target,” she mentioned.

The remarks got here amid rising market expectations that the BOJ might exit adverse rates of interest this month, fuelled partially by a media report on Wednesday that at the least one in all its board members might name for such an motion this month.

The rising momentum for a March stimulus exit lifted the yen to a one-month excessive in opposition to the greenback, and pushed up authorities bond yields, a development that continued on Thursday.

Analysts have tipped both the March or April conferences as attainable timings of the pivot. Back in mid-February, most polled by Reuters noticed April as way more probably as a result of that’s when the BOJ produces recent quarterly progress and inflation forecasts.

Nakagawa’s remarks observe these of fellow BOJ board member Hajime Takata, who mentioned final week Japan was lastly seeing prospects it might durably attaining the financial institution’s 2 per cent inflation goal.

BOJ governor Kazuo Ueda added to the hawkish refrain in a while Thursday, saying the chance of attaining the financial institution’s inflation goal was regularly rising.

“If we confirm that a positive wage-inflation cycle is strengthening, we can examine modifying our massive monetary easing measures,” Ueda advised parliament.

“Regardless of whether we ditch or maintain yield curve control, we will continue to buy long-term bonds,” he mentioned.

Despite current weak indicators within the economic system, BOJ policymakers have signalled their intention to maneuver forward with their plan to dial again stimulus – together with Ueda, who supplied an upbeat tackle Japan’s financial outlook final week.

Japan’s actual wages shrank in January for the twenty second straight month however on the slowest tempo in over a yr, information confirmed on Thursday, as value pressures from rising meals and uncooked materials prices dissipated.

In an effort to reflate progress and hold inflation sustainably round 2 per cent, the BOJ guides short-term rates of interest at -0.1 per cent and units a 0 per cent goal for the 10-year bond yield underneath a coverage dubbed yield curve management (YCC).

It additionally buys big quantities of presidency bonds and retains in place a framework to purchase dangerous belongings corresponding to belief funds investing in shares and property.

BOJ officers, together with Deputy Governor Shinichi Uchida, have signalled that the central financial institution will overhaul the entire instruments when debating an exit from adverse charges.

Governor Ueda has mentioned the end result of this yr’s annual spring wage negotiations can be key to how quickly the BOJ can section out the financial easing measures.

Big corporations will settle their wage negotiations with unions on March 13, days earlier than the BOJ’s coverage assembly on March 18-19.

While pointing to some constructive indicators on the wage outlook, Nakagawa mentioned there was a danger that wages fail to rise sufficient and harm family sentiment, thereby cooling consumption.

“Consumption appears weak in both real and nominal figures” regardless of a return in exercise after the Covid-19 pandemic, Nakagawa advised a information convention after the assembly with enterprise leaders, including that developments in consumption have been key to her resolution on the timing of an exit.

“It’s also important to note that wage hikes, and hopes of continued wage increases, will likely underpin consumption.” REUTERS