The Bank of Japan is expected to maintain the world’s last negative rate on Tuesday, December 19.
If this forecast comes true, investors around the world will actively study analysts’ comments in search of signals on whether the authorities of the mentioned Asian country will continue the current monetary policy next year.
Most economists surveyed by the media predict that the interest rate below zero will be abolished by April. In this case, the prospects will become clearer after the Japanese financial regulator releases its assessment of efforts to achieve the inflation target. After the change of harsh rhetoric to a more moderate one by the Federal Reserve last week, there was the expectation that the Governor of the Bank of Japan, Kazuo Ueda, could present a similar surprise. But in this case, the justification of the principle of analogy as a criterion for making a forecast is not too high.
Officials of the Bank of Japan do not believe that the current conditions and circumstances form a kind of situation of necessity to abandon the negative interest rate. This month, the media, citing insiders, reported that the financial regulator of the Asian country does not see sufficient evidence of wage growth to maintain stable inflation.
The policy of controlling the yield curve is not currently in the spotlight, as it is widely believed that it has become an insurance policy to prevent a sudden jump in bond yields.
Several statements have been made this month that have reinforced speculation about the likelihood of an early cancellation of the negative interest rate. The Deputy Governor of the Bank of Japan, Ryozo Himino, discussed the potential consequences of an increase in the specified indicator in an optimistic tone. Kazuo Ueda stated that his work will become more difficult from the end of the year. This statement was made before the meeting of the head of the financial regulator with Japanese Prime Minister Fumio Kishida.
Economist Taro Kimura says that some investors took the comments of officials of the central bank of the Asian country as a signal that they would soon abandon the practice of controlling the yield curve, but most likely this is an erroneous opinion. According to the expert, in this case, it is more appropriate to expect a step on the long road to creating a base for a smooth transition to a different monetary policy next year.
For Fumio Kishida, it is of particular importance to support the yen to limit imported inflation. The rating of the Prime Minister of Japan shows a negative dynamic against the background of public dissatisfaction with the rising cost of living. Last week, four ministers from Fumio Kishida’s administration resigned after funding for the ruling Liberal Democratic Party provoked a scandal. Against this background, the rating of the government has deteriorated. The mentioned realities in the political sphere may become a factor influencing the decisions of the Bank of Japan.
If there is a plan for the first interest rate increase in an Asian country since 2007, the current moment is not the most appropriate for this. It is obvious that Fumio Kishida would like to implement this decision during a more stable situation in the Government and existence possibly, coordinate actions.
About half of the Bank of Japan’s observers expect that the financial regulator on Tuesday will not signal a move towards normalization in the coming months.
In October, Kazuo Ueda suggested at a press conference that the organization he heads is a little closer to reducing monetary stimulus. At that time, he also noted that confidence in achieving the inflation target had increased slightly.
According to Hideo Hayakawa, former executive director of the Bank of Japan, at present the financial regulator does not need to make additional recommendations on raising interest rates.
As we have reported earlier, Bank of Japan Launches CBDC Pilot.
