Bank of Japan increasingly closer to a rate increase

There Bank of Japan he prepares to finally say goodbye to the era of negative rates and to align with the rate policies of other central banks, due to sticky inflation and wage pressures on price growth. For analysts the decision could be made in Aprilbut some news cannot be ruled out as early as next week.

Inflation and wages

The latest data frominflation indicate a price increase of 2%, in line with the target of the Bank of Japan, after the 2.3% recorded in December. An inflation that remains sticky, therefore, despite the pressure on wages, the dynamics of which reinforces the expectation of possible increases in the cost of money by the Bank of Japan.

Consistent salary increases were negotiated by the trade union confederation Rengoduring the spring round of negotiations, known as “shunto” or “spring battle,” which precedes the start of the fiscal year on April 1. The average increase in wages resulted in fact of 5.28%, at the top for over thirty years (maximum since 1991)on requests that also aimed at an increase of 5.85%.

A dynamic that could support a surge in inflation of a non-temporary nature and therefore advise the BoJ to do so normalization of monetary policy.

What the Bank of Japan will do

These data will probably convince the BoJ to abandon the negative interest rate policy (today they are set at -0.1%) and withdraw the policy of controlling government bond yields, starting a normalization of monetary policy and raising rates by 0.1%.

This expectation is already incorporated into market expectations, with one The Yen strengthened against the dollar by 1.4% over the week, while 2-year Japanese government bond (JGB) yields reached a new high maximum of 0.19%.

However, no further significant and rapid rate increases are expected in the future. Governor Ueda himself confirmed this after the last press conference, indicating that the monetary policy context will remain extremely favorable for the moment and therefore subsequent rate increases will be very modest.

Analysts are betting on April

“BoJ talk has become more optimistic about the emergence of a wage spiral, and more members of the committee are now willing to raise rates by 0.1% for exit from negative rate policy (NIRP) by March“, underlines the weekly report of the Global Credit Team of Algebris Investments.

“We brought forward our forecast on first BOJ cut in April compared to mid-2024 as we previously thought. Therefore, we are short duration in Japan,” says César Pérez Ruiz, Head of Investments & CIO at Pictet Wealth Managementadding that “the BOJ may act before other major central banks, which are considering lowering rates.”