RPT-MNI POLICY: BOJ Policymaker Caution Could Impede Board Consensus

(Story first published Jan 23)

The Bank of Japan's board remains divided over whether sufficient evidence of sustainable wage inflation exists to justify a move away from negative rates, meaning Governor Kazuo Ueda's opinion will carry more weight, though officials still hope to achieve consensus, MNI understands.

Board members Naoki Tamura and Seiji Adachi believe current conditions sufficient to remove negative rates soon. Asahi Noguchi, however, wants more data on wages despite taking a dovish stance, while Toyoaki Nakamura and Hajime Takata lack a clear view and will likely be influenced by Ueda. Nakamura remains against early policy change due to his focus on small-firm profits and wage hikes.

The governor and his two deputies, Shinichi Uchida and Ryozo Himino, are expected to hold the same view.

MNI has reported the Bank could end its negative rates policy in April, following the publication of key wage hike data, such as the Rengo survey. (See MNI POLICY: BOJ Mulls Framework Post Likely April Rate Liftoff) Strong results from smaller firms could help persuade the more cautious policymakers.

The market will largely view an end to negative rates in March or April as symbolic and it will likely not seriously impact economic activity. However, bank officials would prefer the board to vote unanimously for the removal of negative rates to avoid criticism of premature policy decisions should the economy worsen due to an unexpected shock.

WAGE DOUBTS

The recent Branch managers’ report showed strong corporate wage hikes, although bank officials told reporters the outcome printed largely within forecast. However, they believe weaker-than-expected wage hikes or price moves could make those cautious policymakers more reluctant.

The more dovish board members, encouraged by the strong report, expect increases this year to outperform 2023’s 3.58% gain and they could push for policy change as early as March. However, they will not rush to phase out easy policy as BOJ officials do not believe the Bank is “behind the curve.”

Governor Kazuo Ueda’s view on wage hikes will greatly influence each board members’ thinking. Bank officials, however, cannot determine how or when policymakers will reach a consensus on policy change.