The Bank of Japan (BOJ) may consider ending its negative interest rate policy as early as March 2023, according to former central bank board member Makoto Sakurai. This decision hinges on the outcomes of wage negotiations, which are expected to yield pay hikes of 4% or more.
Governor Kazuo Ueda has emphasized the significance of this year's wage talks in determining the timing of the BOJ's monetary policy shift. Major firms will finalize their wage settlements with unions on March 13, ahead of the BOJ's policy meeting scheduled for March 18-19. Economists anticipate a 3.9% average pay increase, surpassing the 3.58% rise negotiated in 2023 – the highest in three decades.
Sakurai believes the BOJ is prepared to exit negative rates, and Governor Ueda will likely make the decision. He suggests a strong possibility that wage hikes exceeding 4% could prompt a policy change in March, although April remains an equally plausible timing.
Sources indicate that the BOJ is poised to end negative rates in the coming months, buoyed by expectations of significant pay increases amidst a tightening job market. A Reuters poll reveals that over 80% of economists anticipate a shift to positive interest rates in April, while a smaller group forecasts action in March.
Despite the ultra-low interest rates maintained by the BOJ, other major central banks have implemented aggressive monetary tightening measures to combat inflation. An exit from negative rates, implemented in 2016, would elevate the BOJ's stance among global central banks and potentially impact global market flows.
Sakurai, who maintains connections with policymakers, asserts that ending negative rates is unlikely to harm the economy significantly since inflation-adjusted borrowing costs will remain low. He emphasizes the need to reduce the BOJ's excessive monetary stimulus given the abnormally low real interest rates in Japan compared to other advanced economies.