By Satoshi Sugiyama
TOKYO, December 15 (Reuters) – The Bank of Japan (BOJ) will start easing its ultra-loose monetary settings as early as January, more than a fifth of economists in a Reuters poll said, raising expectations that the controversial policy era is nearing an end.
Meanwhile, more than 80% of economists expect the Japanese central bank to ditch negative interest rates by the end of next year, a key pillar of the accommodative monetary regime, the Dec. 8-14 survey showed.
A global outlier, the BOJ is likely to end the year as one of the the most dovish in the world although economists predict that it will soon raise interest rates. Central banks in other developed countries, on the other hand, have paused rate hikes and are even preparing to deliver cuts next year.
While none of the economists in the survey predicted changes at next week’s meeting, six of 28 economists, or 21%, said the BOJ will begin dismantling current monetary conditions in January.
Specifically, four out of 28 – Daiwa Securities, Mitsubishi UFJ Morgan Stanley, Nomura Securities and T&D Asset Management – or 14%, said the BOJ will end its negative interest rate policy at the January 22-23 meeting. Japan’s short-term deposit rate is currently set at minus 0.1%.
Mitsubishi UFJ Morgan Stanley, JP Morgan and ZKB predicted that the BOJ will abandon its yield curve control (YCC) policy in January. Daiwa Securities predicted that the BOJ will touch YCC again, raising the long-term interest rate guidance target and retaining the framework of the policy to avoid a sharp rise in long-term interest rates.
It would be desirable for Ueda to issue a directive this month to BOJ leadership to begin considering raising the negative interest rate so that the market is informed in advance, said Mari Iwashita, chief market economist at Daiwa Securities.
“Even with the removal of the negative rate policy, the BOJ will make it clear that the financial environment is still accommodative,” Iwashita said.
In last month’s survey, five out of 26, or 19%, predicted the beginning of monetary tightening in January.
BOJ Governor Kazuo Ueda said last week the central bank faced an “even more difficult” situation at the end of the year and into early 2024, roiling markets as speculators increased bets that policy change was imminent.
END IN SIGHT
Overall, 84% of economists predicted that the negative tax policy would end by the end of 2024 in their pre-quarter forecast, up from 71% in November and 54% in October.
April remained as the highest choice among economists for the negative tax policy to be removed, with 61%, or 17 out of 28, responding as such to an extra question. Four chose July, while three chose 2025 or later.
In April, the BOJ will review the price outlook and say in its quarterly report that the price target would be reached after determining the rate of wage increases in next year’s spring labor talks, said Moe Nakahama, research associate at Itochu Research Institute.
She said the Japanese central bank would end both the negative exchange rate and YCC policies simultaneously in April.
During the January-March quarter next year, 10 out of 44 economists predicted that the deposit rate would be between 0.00% and 0.10%.
In the next quarter, 28 out of 42 respondents expected the rate to be either 0.00 or 0.10%, while two others – Allied Irish Banks and Fukoku Mutual Life Insurance – predicted it would go as high as 0.25%.
Meanwhile, nearly 90% of economists, or 23 out of 26, said the BOJ would end the YCC rather than touch it again.
Of those 23, all but Citigroup and Mizuho Securities chose sometime in 2024. Three chose January, one went for March, 10 chose April, one identified June and another five chose July.
(Reporting by Satoshi Sugiyama; Polling by Vijayalakshmi Srinivasan, Veronica Khongwir and Devayani Sathyan Editing by Shri Navaratnam)
((Satoshi.Sugiyama@thomsonreuters.com;))
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