Still cautious: Ueda speaks at a news conference at the central bank’s headquarters in Tokyo. The BoJ governor and other officials still see uncertainties over pay trends at the small firms that employ the bulk of Japan’s workers. — Bloomberg
TOKYO: The Bank of Japan (BoJ) is expected to keep its main monetary policy settings steady today, with attention focused on how governor Kazuo Ueda assesses progress made towards achieving the sustainable inflation needed for ending the negative interest rate. All 51 BoJ watchers in a Bloomberg poll expect the bank to keep its short-term policy rate at minus 0.1% and leave the parameters of the yield curve control programme intact at the two-day board meeting.
With growing signs of solid wage growth this year, Ueda’s remarks on the degree of “certainty” of achieving the bank’s price goal will be closely scrutinised at a post-decision press conference.
The meeting takes place after economists ruled out the chances for an end to the world’s last negative rate this month in the wake of a major earthquake on New Year’s Day and Ueda’s dovish remarks at the end of December. Also, with Prime Minister Fumio Kishida facing a deepening slush-fund scandal, economists said this doesn’t seem to be the best moment for Japan’s first rate hike since 2007.
“The BoJ is already all set to scrap the negative rate, and it’s a question of when,” said Nobuyasu Atago, chief economist at Rakuten Securities and a former BoJ official.
“There is no need to rush at the time of a disaster, and it’s most natural to ditch it at the April policy meeting.”
Most economists agree, as 59% of BoJ watchers share that view. By that point, the central bank will have been able to study the initial results of highly anticipated spring wage talks.
Moreover, a new Tankan business survey, fresh results of hearings by branch managers and several additional sets of consumer price index figures will give officials more data to reference in explaining any move.
BoJ officials have been encouraged by growing signs of wage gains after some big businesses pledged larger raises this year.
While the officials still see uncertainties over pay trends at the small firms that employ the bulk of Japan’s company workers, they’re generally optimistic about the outlook for wages, people familiar with the matter said.
That points to a chance of Ueda striking a brighter tone on the probability of attaining sustainable inflation.
The chief has said in recent appearances that the certainty of hitting the 2% inflation goal has risen gradually. If that wording were to change even subtly it could trigger sharp moves in financial markets.
With market players easing their expectations for a rate cut by the US Federal Reserve this year, the yen has once again begun retreating after a short-lived rally that started in November.
If the currency weakens too much, it would drive up import costs and exacerbate household budget concerns. Ueda probably will avoid sounding too dovish in order to help put a floor under the currency.
The BoJ usually releases its policy decision and outlook report around noon (local time), followed by Ueda’s press conference at 3:30pm.
Bloomberg economist Taro Kimura, said: “Signals from governor Kazuo Ueda suggest the BoJ will stand pat until it determines that spring pay talks (shunto) between unions and business leaders starting in March lead to wage raises that boost prices sufficiently to secure its goal of 2% inflation.”
Another key focus will be updated quarterly economic projections.
The bank is likely to discuss cutting its forecasts for economic growth and a gauge of inflation due to a drop in oil prices even as their overall assessment of price trends stays intact, people familiar with the matter told Bloomberg earlier this month.
That indicates changes wouldn’t much influence how they think about the path of monetary policy. — Bloomberg
