Expectations to April Exit from Monetary Easing

The Bank of Japan announced that it would maintain its major monetary easing policy　as a result of Monetary Policy Meeting held on Tuesday. Meanwhile, the bank indicated that the consumers price is rising toward the goal, which meant that it is getting close to the time for getting rid of current extraordinarily easy monetary policy. The market expects it to be April.

JOB decided to maintain short-term interest rate at minus 0.1 percent, which meant that the bank made no change in its negative interest policy. It also held its upper bound of 1.0 percent for 10-year Japanese government bonds yields, continuing large-scale JGB purchases to keep long-term interest rate low. Those policies were unanimously approved.

 

The bank published quarterly Outlook for Economic Activity and Prices after the meeting. What was paid attention was a phrase in it: “The likelihood of realizing this outlook has continued to gradually rise, although there remain high uncertainties over future developments.” Having said that the consumer price index is likely to increase gradually toward achieving the price stability target, the bank suggested that the exit from negative interest rate policy is closer than ever.

 

The bank has a price stability target at 2 percent. The prospect of growth rate of CPI in FY 2025 rose to 1.8 percent, raised by 0.1 percentage point from that in previous meeting. In addition, the bank has a positive perspective on the spring wage negotiations this year. The most requests from labor union side surpass the level of last year and the employers, mainly with major corporations in Japan, are basically willing to raise the wages this spring.

 

In the press conference after the meeting, BOJ Governor, Kazuo Ueda, referred to the possibility of policy change. “If we reach a situation with perspective of achieving the price target, we will consider the right or wrong of continuing large-scale monetary easing policy,” said Ueda. Relating to some speculations about steep interest hike after the exit, 

Ueda insisted that extremely easy situation of monetary policy would last for the time being.

 

BOJ has eight monetary policy meetings a year. Next meetings are set in mid-March, and then at the end of April. The market expects that the bank will announce finishing its negative interest rate policy in the meeting in April, because various data about economic situation, including quarterly Short-term Economic Survey of Enterprises in Japan (Tankan) and reports on local economic situation in coming branch managers’ meeting.

 

Prime Minister Fumio Kishida insists on that it is time for the Japanese to get rid of obstinate mind of deflation. The policies of JOB look to be consistent with the political goal of Kishida. However, the price target policy in Shinzo Abe administration and BOJ Governor Haruhiko Kuroda was not accompanied with increase of real wage. To assure “positive cycle” of price hike and wage hike, the policy makers need to closely watch the economic situation in and out of Japan.