On track: The Bank of Japan headquarters in Tokyo. A poll forecast the central bank to maintain its long-standing, ultra-loose monetary policy to sustainably achieve its 2% target that could heighten market expectations of an end to negative rates in January. — AFP
TOKYO: The Bank of Japan’s (BoJ) policy meeting at which members are likely to debate whether economic conditions are falling into place for the bank to begin unwinding ultra-loose monetary settings.
None of the economists polled by Reuters expected the central bank to end its negative interest rate policy, with most projecting that to happen next year.
However, while some traders projected a policy shift in January, markets were focused on any hints governor Kazuo Ueda offered at his post-meeting briefing on how soon the BoJ takes short-term interest rates out of negative territory.
“The hurdle for beginning policy normalisation before waiting for the early outcome of next year’s wage negotiations is quite high,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
The BoJ was widely expected to keep its short-term rate target at minus 0.1% and that for the 10-year government bond yield around 0%.
Economy Minister Yoshitaka Shindo was to attend as a representative from the Cabinet Office, the government said.
Two government representatives, one from the Cabinet Office and another from the Finance Ministry, usually attend the BoJ’s policy-setting meetings.
They cannot vote but can submit a request for a delay in the board’s vote.
It is rare for a minister to attend, as the task is usually assigned to deputy ministers or junior-ranking officials.
In the past, meetings where cabinet ministers attended resulted in big policy changes, such as the launch of a massive asset-buying programme in April 2013 under former governor Haruhiko Kuroda.
Even if the BoJ keeps policy steady, comments from Ueda reinforcing his conviction that inflation will sustainably achieve the bank’s 2% target could heighten market expectations of an end to negative rates in January, some analysts said.
Japan has seen inflation hold above 2% for over a year, and some firms have signalled their readiness to keep raising wages, increasing the chance of a near-term policy shift.
With consumption showing signs of weakness, however, many BoJ policymakers prefer to await more clues on whether wage gains will accelerate enough to keep inflation sustainably around their target.
Still, markets remain jittery given the BoJ’s history of surprises.
In July, the central bank abruptly relaxed its grip on long-term borrowing costs by raising a cap set for the 10-year bond yield.
The cap was watered down to a loose reference in October, a sign Ueda was moving steadily towards dismantling his predecessor’s radical stimulus.
Analysts said the BoJ may find it easier to move in months like January and April when it releases a quarterly outlook report with fresh growth and price projections.
A sharply changing global monetary policy environment may complicate the BoJ’s decision, with US and European central banks signalling that they are done hiking.
Raising rates at a time other central banks are cutting them could spark a spike in the yen that would hurt big manufacturers’ profits and discourage them from hiking wages, analysts said.
Political factors also muddle the BoJ’s policy path, with persistent inflation blamed for pushing down Prime Minister Fumio Kishida’s approval ratings to historical lows.
“While the BoJ persists in stably achieving its 2% inflation target, Kishida’s administration is probably hoping for more flexible monetary policy management,” said Ryutaro Kono, chief Japan economist at BNP Paribas.
“There are not just economic but political factors that could push forward the timing of a BoJ policy shift,” he said, adding there was a 50-50 chance of the BoJ tweaking its dovish policy guidance and ending negative rates in January. — Reuters
