Major Wage Gains Set Stage for BOJ to End Negative Interest Rate; Bank Likely to Debate Change Next Week

Yomiuri Shimbun file photo
The Bank of Japan

The Bank of Japan could be swayed to end its negative interest rate policy after major companies agreed to large wage increases, above those made last year, in the 2024 shunto spring wage negotiations.

The central bank is expected to decide whether to end its negative interest rate at its monetary policy meetings on Monday and Tuesday, based on a summary of the first round of wage announcements, to be released by the Japan Trade Union Confederation, or Rengo, on Friday.

“The direction of shunto labor negotiations is one of the main points” for deciding whether to change interest rate policy, bank Gov. Kazuo Ueda reiterated at a meeting of the House of Councillors Budget Committee on Wednesday.

The Bank of Japan places great importance on wage hike trends in forecasting when it will achieve its 2% inflation target, as higher wages will increase consumption and raise the likelihood of achieving sustained and stable price rises.

The bank is currently engaged in large-scale monetary easing, keeping short-term interest rates to minus 0.1% and long-term interest rates to around 0%.

The nationwide consumer price index has risen by more than 2% year on year since April 2022.

Ueda had previously said the bank would consider whether to continue its easing measures once it could foresee achieving its inflation target.

“If a high rate of wage increase is confirmed in the spring labor negotiations, the bank will be more likely to take measures to change its policy in March,” said one senior official at the bank.

However, other senior Bank of Japan officials want more time to assess data on wages, prices and economic conditions, so a decision could be postponed to the April 25-26 monetary policy meeting.

Bank policy is deliberated on by nine policymakers: the governor, two deputy governors, and six members of the Policy Board. It is decided by a majority vote.

Should the Bank of Japan decide to end its negative interest rate, it will be the first time that it has raised rates since February 2007.