By Satoshi Sugiyama
TOKYO, November 22 (Reuters) – The Bank of Japan will end its negative interest rate policy next year, more than 80% of economists in a Reuters poll said, growing more convinced that the central bank is moving closer to exiting its controversial monetary policy.
BOJ Governor Kazuo Ueda faces the difficult task of navigating Japan away from the ultra-accommodative policy of the past decade without causing market turmoil or squashing a fragile economic recovery.
While none of 26 economists predicted changes at the upcoming December BOJ meeting, many predicted that the negative rate policy, which set Japan’s short-term deposit rate at minus 0.1%, will reach the end of the line next year.
In the November 15-20 poll, 22 out of 26, or 85%, of economists said that the BOJ will end the policy before the end of next year. That was up from 63% in an October poll and 52% in September.
The remaining four chose “2025 or later.”
At an October policy meeting, the BOJ modified its bond yield controls by redefining 1.0% as an “upper limit” with room for allowance, rather than a hard limit.
After tapering off YCC, the BOJ’s next focus is to end its negative interest rate policy and push short-term rates to zero, sources previously told Reuters.
Close to 85% of survey respondents expect the BOJ to end its YCC policy, while the rest said it will touch the scheme again, the survey found.
EYES ON NEXT YEAR
Of 22 economists in the survey who chose 2024 for the end of negative rates, more than half, 12, chose the April 25-26 meeting. Three chose July, two went for June and one chose October.
Four – Capital Economics, Dai-ichi Life Research Institute, Mitsubishi UFJ Morgan Stanley Securities and T&D Asset Management – said this would happen as early as January.
Then it would become clear that the BOJ should decide the fate of short-term rates in light of inflationary pressure and the trend of wage negotiations, said Hiroshi Namioka, chief strategist and fund manager at T&D Asset Management.
“The negative interest rate will be raised as an ‘inflationary response’ if inflation is sustained or as a ‘continuation of easing’ if inflationary pressures appear to be decreasing,” as the BOJ could argue setting the short-term rates at 0.00% is. considered loose, Namioka said.
WAGES, ECONOMIC MEASURES IN FOCUS
In the survey, 74% of economists said wage growth and base pay increases on average for next year would exceed this year’s 3.58% at large Japanese firms. The percentage dipped to 65% when asked if the same would happen for Japanese businesses in general, including small and medium-sized firms.
Meanwhile, almost two-thirds of economists, 16 out of 25, said the chance of the government’s latest economic package achieving its projection of increasing the rate of GDP growth by 1.2% was “highly unlikely”.
More than half of respondents in multiple public opinion polls said they were unimpressed by the measures, which include cutting annual income and other taxes by 40,000 yen ($267.34) per person and paying 70,000 yen to poor households. The unpopularity of the package is cited as one factor by Prime Minister Fumio Kishida declining public support.
“One-time income tax cuts would have a very limited acceleration effect,” said Chiyuki Takamatsu, chief economist at Fukoku Mutual Life Insurance.
($1 = 149.6200 yen)
(Reporting by Satoshi Sugiyama; Video credits: Veronica Khongwir and Sujith Pai; Editing by Sam Holmes)
((Satoshi.Sugiyama@thomsonreuters.com;))
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