Two-thirds of BOJ watchers expect end of negative rate regime by April
BANK of Japan (BOJ) watchers are increasingly expecting the bank to achieve its inflation target, with a growing majority forecasting authorities will end the world’s last negative rate regime by April, according to a Bloomberg survey.
More than two-thirds of polled economists see the BOJ scrapping its negative rate by April, with half of the 52 respondents saying it will happen that month. In the previous survey in October, 29 per cent saw the move coming in April.
The results come in a week where financial markets were jolted by the prospect of an even earlier end to sub-zero borrowing costs as traders reacted to comments from BOJ Governor Kazuo Ueda and one of his deputies. Amid hints they could be preparing for a policy shift, Japanese bond yields surged by the most in a year and the yen strengthened almost 4 per cent.
Almost all of those surveyed expect the policy board to retain the negative rate and yield curve control program when it gathers this month, with the focus falling on whether Ueda might drop any indication of changes to come in a policy statement or at his press conference following the Dec 19 decision.
Leaving aside the issue of timing, some 78 per cent of respondents said raising the short-term rate would be the next BOJ policy step when multiple options for such predictions were allowed.
The results show growing expectations that authorities will seize the opportunity to normalise policy after getting confirmation of solid wage gains as part of annual spring wage negotiations.
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Some 52 per cent said they expect the outcome from the talks to exceed results achieved this year. That’s twice as many optimists compared with the previous survey and follows a series of ambitious pronouncements from labor unions aiming to build on this year’s gains, which were the biggest in three decades.
“The most beautiful scenario is the end of the negative rate in April,” said Yasunari Ueno, chief market economist at Mizuho Securities. “Still, there is more than a little chance of scrapping it even in January or March as they want to get their homework done as early as possible given uncertainties in financial markets and the political climate.”
The BOJ added flexibility to its yield curve control program at the latest meeting in October. Only one economist expected a back-to-back move on YCC. More than three quarters of economists see zero risk of a change to rate policy this month.
With that in mind, a key question for the BOJ watchers is whether Ueda and his board may use the December meeting to send smoke signals flagging the approach of policy normalization. Some 36 per cent said there is a chance that might happen, while half do not expect it.
In an indication that market participants are getting more comfortable with the idea of a policy transition, some 94 per cent of the economists said scrapping the negative rate wouldn’t exert a major drag on the economy.
On Thursday (Dec 7), 10-year sovereign debt yields climbed to 0.75 per cent, while the yen rose to its strongest versus the dollar in months after remarks by BOJ Deputy Governor Ryozo Himino on Wednesday and by Ueda on Thursday prompted traders to move forward bets on policy normalization.
“It seems more likely to us that, under governor Ueda, the BOJ makes an important policy shift when there is also a quarterly review of forecasts – i.e. in the January, April, July, October meetings,” said Joey Chew, head of Asia FX Research at HSBC.
“But we can imagine how some market participants would recall previous governor Kuroda’s penchant for policy surprises and therefore regard every meeting as ‘live’.”
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