CORRECTED-MNI INTERVIEW: BOJ Policy Shift Closer

(Corrects story to make clear that an adjustment to easy policy could happen as early as December, not December at the latest)

The Bank of Japan will need to study company scheduled earnings found within the monthly government labour survey before any policy adjustment and will not rely solely on wage data supplied by Japanese Trade Union Confederation Rengo, a former BOJ chief economist told MNI.

Scheduled earnings rose 2.1% y/y in September, a solid result compared to past reads, but the BOJ wants this to remain strong, while it will view wage data supplied by Rengo due mid-March as a reference point only, explained Toshitaka Sekine, professor at the School of International and Public Policy at Hitotsubashi University.

MNI reported last week some BOJ officials were concerned weaker-than-expected GDP could diminish the likelihood of an April exit to negative rates and yield curve control. (See MNI POLICY: Economic Concerns Weigh On BOJ's April Exit Plan) The BOJ wants to see solid wage data before it commits, MNI reported in November. (See MNI POLICY: Solid Wage Data Needed Before BOJ April Exit Talk)

POLICY CHANGE APPROACHES

Any public acknowledgement by Governor Kazuo Ueda that the economy was on track to achieve the 2% price target would lead to a swift market reaction, however, recent statements showed the BOJ believed policy change was approaching, Sekine explained.

Ueda said in early November the likelihood of achieving the price stability target of 2% “seems to be gradually rising.”

But Sekine sees high uncertainty over the so called second force, or inflationary pressure between wages and prices. The BOJ has emphasised low real interest rates, showing it believes the degree of current accommodative policy is strong and a sign it is contemplating the removal of negative interest rates, he added. This also means that, while the strength may soften, policy will stay loose should the BOJ adjust its settings, he noted.

Sekine declined to comment on when the BOJ may exit its easy policy, as all meetings are potentially “live,” but stressed adjustment will occur soon – potentially in December – as data to back a shift strengthens.

He questioned the weak capital investment within recent GDP results, down 0.6% q/q in Q3 and 1.0% in Q2, compared to the strong capex plans recorded in the BOJ's Tankan survey, noting the softer result may also weigh on the Bank's decision. The weaker – and typically more volatile – consumption figures would not concern the BOJ, he added.