The Bank of Japan is anticipated to keep its highly ultra-loose monetary policy in the upcoming week, echoing cues from BoJ’s Governor Kazuo Ueda regarding the potential timing for the central bank to elevate short-term interest rates from a negative area.
With several policymakers opting to wait a few more months to gauge the extent of widespread wage increases, ensuring the stability of inflation at 2%, the BOJ is projected to initiate the trajectory toward rate hikes no earlier than March, possibly extending to April, as per market expectations.
Although the Bank of Japan may have its sights set on ending the era of negative rates, sources familiar with the central bank's perspective suggest that waiting until at least its April 25-26 meeting holds numerous advantages.
Surveys and insights from business lobbies indicate a growing likelihood that Japan's spring wage hike will surpass last year's 30-year high of 3.58% for large companies.
The majority of BOJ policymakers are exploring the scope of broader wage hikes to encourage companies to redistribute higher labor expenses through increased prices, particularly in the realm of services.
This aligns with predictions from Reuters analysts, anticipating that the Bank of Japan will maintain its key short-term interest rate at minus 0.1% and the 10-year government bond yield during its two-day meeting.
With alleviating cost pressures that slow inflation to 2%, the Bank of Japan may opt to await additional data, including the outcomes of annual wage discussions between major companies and unions in March.
The lack of urgency in the Bank of Japan's response to address inflation risks is highlighted by some sources, who point out a lack of pressure to speed up the process.
The clarity on the determination of the core inflation estimate for the fiscal year beginning in April and the projection of long-term inflation hovering around 2% in the upcoming years will emerge following the board meeting in April. This development could potentially justify a shift in policy.
Additionally, some analysts highlight that the Bank of Japan will diligently observe the economic and market implications percussions should the US Federal Reserve consider a rate cut.
Eiji Maeda, a former executive of the Bank of Japan, has voiced an opinion that the BoJ might put an end to negative rates in April if domestic inflation continues to strengthen.
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