The Bank of Japan's ultra-loose monetary policy pivot is coming?
Bank of Japan Governor Kazuo Ueda said on Monday, according to ** reportsThe probability of achieving the central bank's inflation target is "gradually rising", and if the probability of a sustainable 2% inflation target is "sufficient" raised, the BOJ will consider changing the negative interest rate monetary policy
"If the virtuous cycle between wages and prices strengthens and the likelihood of achieving the price target in a sustainable and stable manner increases sufficiently, we may consider changing policy. ”Kazuo Ueda said it was the clearest sign to date that it was possible to end the ultra-loose monetary policy. Kazuo Ueda pointed out that raising interest rates under normal economic conditions has some potential positive effects. Bank of Japan Deputy Governor Ryozo Himino has previously mentioned that net interest income will improve when there are no negative interest rates.
However, Kazuo Ueda also said on Monday that the Bank of Japan has not yet decided on the specific timing of the adjustment of monetary policy in view of the high degree of uncertainty in the domestic and foreign economy and financial markets
We will carefully study economic developments and companies' wage and pricing practices to determine future monetary policy in an appropriate manner.Kazuo Ueda said the chances of the Japanese economy moving out of low inflation and meeting the price target are rising, but not high enough. The Bank of Japan will patiently maintain monetary easing to support an economic environment conducive to wage growth
"The most obvious benefit of a small increase in inflation is that in the event of a recession, there is more room for monetary policy to respond.One point to watch is whether salaries will continue to be "significant" in next year's spring salary negotiations**
The JGB market reacted mutedly to Kazuo Ueda's comments, and JGB yields trended as the Bank of Japan regularly conducts bond purchases.
As Japan's inflation rate has exceeded the 2% target for more than a year,Market participants expect the Bank of Japan to end its negative interest rate policy next year, and some are even betting that it may raise interest rates in January next year.
Wall Street News mentioned in a previous article that in the current situation, the Bank of Japan "has a long way to go": on the one hand, it is imperative to end the long-term negative interest rate policy, and the continuous rise in inflation has caused dissatisfaction in Japan, on the other hand, there is also a risk of rushing to end negative interest rates, Japan's domestic economy may be impacted, and the yen and Japanese bond yields may face a new round of market pressure. Analysts generally believe that Kazuo Ueda will maintain negative interest rates and will not "rush to raise interest rates" by the end of the year. The Governor's and Deputy Governor's comments were aimed at preparing global markets for the normalization of the Bank of Japan's monetary policy next year, and it is too early to judge the expectations of a rate hike in December and January next year.
But what is certain is that the Bank of Japan has already signaled an early farewell to the "era of negative interest rates". Mizuho Research & Economist Technology and former Head of Monetary Policy at the Bank of Japan Kazuo Momma said:
If the BoJ can confirm the ongoing trend in wages**, the BoJ is expected to end negative interest rates in April and raise short-term interest rates slightly later in 2024.On December 21, Japan's Ministry of Internal Affairs released calculations showing that Japan's per capita income will increase by 38%, more than 25% inflation expectations. This is the first time in three years that income growth has outpaced inflation. The Ministry of Internal Affairs said in the report that the increase in real income is an opportunity to push the economy out of deflation and into a new phase as the main drivers of economic growth shift to domestic demand, including personal consumption and capital investment.
It is worth mentioning that this means that even if inflation is above the BOJ's 2% target, income growth will outpace inflation.
Japan** expects the tax cut to bring 4 trillion yen ($27.8 billion) in revenue growth, contributing 13 percentage points.
In other words, without fiscal stimulus, next year's income growth will be on par with inflation.
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