Economists Speculate: Bank of Japan's Tightening Monetary Policy Timeline


A majority of economists surveyed by Reuters anticipate that the Bank of Japan is going to stop using negative interest rates in the near future. What’s more, more than two-thirds of these economists believe that the central bank is gradually approaching the end of its ultra-loose monetary policy.

Bank of Japan Governor Kazuo Ueda is aiming to scale back the monetary stimulus introduced by his predecessor, although he faces the challenging task of achieving this adjustment without causing abrupt and disruptive market fluctuations.

While most of the 28 economists surveyed between October 17 and 25 predicted that there would be no policy changes at the next meeting, three of them (from Barclays, JP Morgan, and UBS) claimed that the Bank of Japan would start gradually shifting away from its dovish stance.

The majority, specifically 63% out of 27 economists, anticipate that the Bank of Japan will terminate its negative interest rate policy, which has resulted in short-term deposits in Japan having a negative interest rate of minus 0.1%, by the end of the upcoming year. This percentage marks an increase from 52% in the September survey and 41% in August.

The other 10 economists have indicated 2025 or later as a potential timeframe for this transition. Among the 17 economists who have pinpointed 2024, 10 have identified the conclusion of the period of negative rates specifically at the April meeting scheduled for April 25-26. Three have suggested January, two have proposed July, and one has mentioned March and June as potential timelines.

The Bank of Japan stands apart as the only major central bank that is continuing with its ultra-loose policy, even as most other countries are aggressively hiking interest rates in an effort to combat inflation.

UBS economist Masamichi Adachi foresees that the Bank of Japan will no longer use negative interest rates following the April meeting next year. He bases this expectation on the results of wage negotiations taking place in the spring and believes that the goal of achieving a 2% inflation rate will be reached by the fiscal year 2026.

Approximately 70% of the respondents in the survey anticipate that the Bank of Japan will end its yield curve control (YCC) policy by the close of 2024. This marks an increase from the 78% figure recorded in the previous survey, which included a smaller number of participants.

In addition to ending negative interest rates and the YCC, six economists believe that one of the most likely future steps to move away from the ultra-loose policy is to raise the target yield on 10-year fixed-rate Japanese government bonds to a level above 1.0%.

During its October policy meeting, the Bank of Japan also intends to revise its core CPI projections for the fiscal year ending in March 2024. It is expected to increase this forecast to nearly 3%, surpassing the previous projection of 2.5% made in July, according to sources cited by Reuters.

While economists' average forecast for core consumer inflation in fiscal 2024 remains at 2.0%, 89% believe the risk of inflation is skewed to the upside.

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