MNI BOJ WATCH: Ueda Hints At April End To Negative Rates

The Bank of Japan’s 2% inflation target is in sight as signs build of a virtuous cycle between wages and prices, Governor Kazuo Ueda said on Tuesday after the BOJ left policy unchanged at its meeting, in comments which pointed to a possible move away from negative rates in April.

“If the virtuous cycle strengthens and if the BOJ can be confident of the 2% price target, the Bank will examine whether it is appropriate for the BOJ to continue with easy policy, including the negative interest rate policy,” Ueda told reporters

When asked about the chances of a policy change at the March meeting, Ueda said the BOJ would examine the outlook based on available economic data at that time, but added that more information will be available by April. (See MNI BOJ WATCH: Board To Consider Hold; Wages, Services In Focus)

In the BOJ’s Outlook Report released after the meeting, fiscal 2025’s core-core CPI projection was left at 1.9%, in a sign that policymakers could foresee achieving the 2% target when they next update their view in April. While the core-CPI projection for fiscal 2024 was revised down to 2.4% from October’s 2.8% in the wake of the drop in crude oil prices, the BOJ left the core-core CPI projection unchanged at 1.9%.

ACCOMODATIVE ENVIRONMENT

An accommodative financial environment will be maintained even if the BOJ removes negative interest rate policy, the governor said, indicating that he does not see any rapid rise in interest rates. Nor will the BOJ make any abrupt move to suspend government bond purchases, he said.

The output gap does not need to have to turn positive for the BOJ to change its stance, Ueda said. The gap was estimated at -0.37% in Q3, widening from -0.15% in Q2 for the 14th consecutive quarterly negative figure.

In its Outlook Report, the BOJ said the likelihood of achieving the price target “has continued to gradually rise, although there remain high uncertainties over future developments.”

Earlier in the day, the BOJ board decided to keep its yield curve control and negative interest rate policy unchanged. It kept the short-term interest target at -0.1%, the long-term interest rate target at around zero percent, and the upper end of for 10-year Japanese Government Bond yields at 1% as a reference.