MNI INTERVIEW: Ex-BOJ Momma Sees Risk Policy Holds In April

The Bank of Japan will likely abolish its negative interest rate, yield curve control and overshooting commitment in April, but poor services prices and wage rises could force it to delay adjustment until July or later, former BOJ Executive Director and Chief Economist Kazuo Momma told MNI.

“My baseline scenario is the triple abolishment in April,” Momma, now executive economist at Mizuho Research and Technologies, told MNI in an interview.

But the Bank could delay change should services prices and wages fail to rise as much as the BOJ expects, he added, noting about a 30% chance of a delay until July or later exists should the BOJ deem it a serious risk.

MNI has reported the BOJ will likely exit its negative rates settings at the April 25-26 meeting. (See (See MNI POLICY: BOJ April Action Will Hinge On CPI Result) Momma told MNI in October the Bank would likely scrap YCC in April. (See MNI INTERVIEW: BOJ To Scrap Yield Curve Control In April-Momma)

Momma said the BOJ could not confirm the pass-through of wage hikes to services prices, which seemed insufficient to support its 2% CPI growth target. But hefty wage hikes should filter through eventually, he said, noting spring wage negotiations will likely show stronger pay increases. However, trade union organisation Rengo’s data could show softer increases, particularly among smaller employers, he added.

Rengo will publish the first round of its wage data on March 15, but will update the results at least seven times until July.

Momma doubted the BOJ would adjust its settings at the March meeting, noting April remained the strongest contender as policymakers will will have access to a range of data from the branch managers’ meeting and the Tankan and Financial System Report as well as anecdotal data.

“That is the most natural story,” Momma said, adding the Bank could raise its policy interest rate one-two times in 2024 after removing the negative interest rate policy. The BOJ had created an environment where the abolishment of negative rates, YCC and the overshooting-commitment would not cause major market disruption, he continued.

QT FOCUS

The market’s major focus will rest on whether the Bank shifts to quantitative tightening (QT), he added, arguing the BOJ will maintain its portfolio for now and pursue a flexible approach to its government-bond portfolio to avoid rapid long-term interest rate movements.

While the bank is expected to cease purchases of exchange-traded funds and Japanese real estate investment trusts, it will likely not detail plans to sell those assets or immediately reveal QT measures, MNI has reported. (See MNI POLICY: BOJ To Pursue Mkt Friendly Hikes After Policy Exit)

Momma expects the board will set its core-core CPI forecast for fiscal 2026 in April’s Outlook Report at 2%. “The board’s price forecasts in fiscal 2024, 2025 and 2026 will be 2%,” he added, noting it could set 2026 10bp higher to avoid the perception its predictions were “too mechanical”.