MNI POLICY: BOJ May Consider March Policy Change On Strong Data

While the April 25-26 meeting remains the most likely timing for policy adjustment, there is still an outside chance the Bank of Japan could look to end its negative rates policy in March 18-19 due to strong wage and prices data, MNI understands.

Stronger-than-expected spring wage negotiations in-or-after February and results of the first wage hike survey due out on March 15 could help convince the more cautious policymakers that the Japanese economy can hit the bank’s 2% price target. (See MNI POLICY: BOJ Policymaker Caution Could Impede Board Consensus)

Bank officials are focused on whether the first average wage hike results at major and smaller firms surveyed by the Japanese Trade Union Confederation, Rengo, will outperform 2023’s first results of 3.80% and 3.45%. The final surveys released in July last year showed 3.58% and 3.23% increases.

Japan's big firms are expected to offer their unions a 3.85% wage increase on average this year, the highest level in 31 years, according to a survey conducted between Dec 25 and Jan 9 by the Japan Centre for Economic Research. Wage hikes by smaller firms will be gradually incorporated into the surveys up to early July.

The BOJ board may also want to avoid any notion its decision was politically motivated, increasing the chance of a shift at the March meeting. The Diet will hold elections for several board seats on April 28.

The Bank kept policy unchanged at its Jan 22-23 meeting, however, the recently published opinions and summary from December’s decision showed policymakers discussed post-exit monetary policy despite agreeing to maintain an accommodative stance even after adjustment. (See MNI BOJ WATCH: Ueda Hints At April End To Negative Rates)

EITHER, OR

BOJ officials see no major difference between a March or April exit to negative rates, as markets and businesses have already factored in the removal.

Governor Kazuo Ueda’s comprehensive assessment will drive the final decision, although he maintains a risk-management approach. Ueda has noted the BOJ will likely run monetary policy in a way that will not cause major disruptions to the markets when it exits its easy policy settings.