Sources familiar with the Bank of Japan's stance indicate that despite the country slipping into recession, the institution is poised to phase out negative interest rates in the near future.
However, the ongoing weakness in domestic demand suggests that they might seek further evidence of wage growth before taking action.
The recent revelation of Japan's gross domestic product contracting unexpectedly for two consecutive quarters, officially marking a recession and causing it to relinquish its position as the world's third-largest economy to Germany, has rattled analysts.
This development underscores the challenges facing Japan's economy and adds pressure on policymakers to implement measures to stimulate growth.
Nevertheless, the BOJ's primary focus remains on the potential repetition of substantial wage hikes anticipated for 2024, as this is perceived as crucial for breaking free from Japan's prolonged period of subdued household spending, as we read in Reuters.
Consequently, the upcoming annual wage negotiations in spring, which determine pay levels for 2025, carry more weight as an economic indicator for the BOJ compared to the retrospective fourth-quarter GDP data.
While the contraction in consumer sectors evident in the GDP figures suggests a shift away from negative rates may be more likely at the BOJ's April meeting rather than March, this delay provides the bank with additional time to assess the economy's condition.
By prolonging the decision-making process, the BOJ aims to make a more informed choice regarding the appropriate monetary policy measures to support economic recovery.
According to insiders, while domestic demand lacks vigor, the BOJ's decision-making process considers a multitude of factors beyond just GDP figures. The focus remains on understanding the broader economic trajectory and outlook.
This holistic approach enables the BOJ to formulate policies that address underlying structural issues and promote sustainable growth in the long term.
BOJ governor Kazuo Ueda, who assumed office recently, has been laying groundwork for a departure from the aggressive monetary stimulus initiated by his predecessor, Haruhiko Kuroda, which has been criticized for distorting financial markets.
Ueda's tenure is marked by a shift towards a more nuanced approach to monetary policy, aimed at achieving a balance between stimulating economic activity and maintaining financial stability.
Ueda has reiterated that adjustments to various monetary easing measures, including negative rates, are still on the table despite the recent GDP data.
Escalating labor shortages have prompted many companies to signal significant wage increases, fostering hopes of widespread income growth that would bolster household purchasing power against persistent price inflation.
The BOJ anticipates that higher wages and diminishing cost pressures will support consumption and the overall economy, thereby stabilizing inflation around its 2% target and enabling a normalization of monetary policy. This strategy aligns with the BOJ's long-term objectives of achieving price stability and fostering sustainable economic growth.
Deputy Governor Shinichi Uchida recently outlined the BOJ's strategy for unwinding its intricate policies, including a commitment to gradual adjustments upon ending negative rates.
Market observers widely anticipate an end to negative rates either in the March or April policy meetings, with a Reuters poll unanimously predicting this shift by April.
However, postponing the withdrawal from negative rates could exacerbate the recent depreciation of the yen, further dampening consumer spending by elevating import costs.
Market sentiments heavily factor in imminent action by the BOJ, and failure to act could trigger significant market disruption. This underscores the importance of clear communication and decisive action by the central bank to maintain market confidence and stability.
While the BOJ adheres to its timeline for an imminent policy change, it may opt for April over March to gather more data amid uncertainties surrounding the economic outlook.
Some analysts foresee another economic contraction in the current quarter due to sluggish consumption and delays in capital expenditure prompted by labor shortages.
Key indicators BOJ policymakers are likely monitoring ahead of the March meeting include the outcome of major firms' wage negotiations with unions and revised GDP data for October-December, which could offer insights into capital expenditure trends.
These data points will inform the BOJ's decision-making process and guide its actions to support economic recovery and ensure price stability in the months ahead.
18.02.2024
コメント