Bank of Japan Considering Major Changes to Monetary Policy; May Lift Negative Interest Rate Policy

Yomiuri Shimbun file photo
The Bank of Japan’s head office in Tokyo

The Bank of Japan has begun considering major changes to its monetary easing measures, including lifting the negative interest rate policy, at its policy-setting meeting next week, according to sources.

The central bank has said that it will consider whether to shift its policy course if a virtuous cycle, in which wages and prices both rise, can be expected to be realized. The environment for the policy shift now appears to be ready as data has shown that the average of wage hikes is high in this year’s shunto spring wage negotiations.

According to a tally of the first round of wage announcements, which was released Friday by the Japanese Trade Union Confederation, or Rengo, its 771 member unions have received a weighted average of 5.28% in pay hikes, up 1.48 percentage points from a year earlier. This is the first time in 33 years that the figure exceeded 5%.

The central bank has kept its short-term policy rate at minus 0.1%, while implementing a yield curve control program, under which long-term interest rates are capped around 0%. If the BOJ ends the negative rate policy, that will pave the way for its first rate hikes in 17 years since February 2007.

The central bank has taken a stance to consider whether to change its monetary policy if it becomes more certain that the price stability target of 2% will be achieved along with wage increases. BOJ Gov. Kazuo Ueda has said that one major point for the policy shift is the shunto negotiation results.

Regarding policy changes, the central bank is also expected to consider other modifications, such as changing the framework for purchasing long-term government bonds and suspending the purchase of exchange-traded funds (ETFs) in order to keep long-term interest rates at low levels.

However, some policy board members have been cautious about the lifting of the negative rate policy at the upcoming policy-setting meeting. If the policy board concludes that information and data are not sufficient, the BOJ may postpone its consideration of the policy shift until it meets on April 25-26.