Bank of Japan officials do not yet see a reason to decide to cancel the world’s last negative interest rate in December.
The relevant information was published by the media with reference to insiders who provided the data based on anonymity. The informants referred to by journalists say that the financial regulator of the mentioned country has not recorded sufficient evidence of such a salary increase that would ensure stable inflation.
The data provided by insiders indicate a low, bordering on zero, level of probability that the Bank of Japan will make changes to the concept of monetary stimulus in the current month as part of a two-day policy meeting to be held on December 18-19. At the same time, expectations of the cancellation of the negative rate are spreading in the market. Many experts say that these are speculations that do not correspond to reality and are not consistent with how the financial regulator sees the current economic situation.
Media outlets, citing insiders, report that Bank of Japan officials view the potential cost of waiting for more information to confirm solid wage growth as not very high.
The yen’s losses increased to 1% in afternoon trading after the news was published that there were no signs of an imminent cancellation of the negative rate. Currently, the Japanese currency exchange rate is at the level of 146.46 yen per dollar.
Traders say that the further dynamic of the yen will depend on how the Federal Reserve assesses the prospects for its policy at the meeting of the Open Market Committee, which is scheduled for Wednesday, December 13. Also, in this case, the results of the Bank of Japan meeting next week will be a factor of influence.
Fukuhiro Ezawa, head of financial markets at Standard Chartered Bank in Tokyo, says that the report by the Japanese financial regulator further ruled out the possibility of an early cancellation of negative interest rates. According to the expert, to see a dollar yen above 147, it will be necessary to confirm there is nothing in the FOMC dot chart or the Bank of Japan meeting.
Insiders say that the financial regulator will make a final decision on its policy after reviewing all available data for the period from now to the meeting. Also, in this case, officials will take into account the results of the Tankan survey. Another important factor in making a decision will be the state of affairs in the financial markets.
The Bank of Japan surprised economists in July and December last year taking advantage of expectations of no change.
The governor of the financial regulator Kazuo Ueda provoked investor speculation about the normalization of the concept of activity of the organization he heads. Market sentiment changed after he said his job would become more difficult from the end of the year. Insiders say that Bank of Japan officials perceive Kazuo Ueda’s comment as a general statement, rather than a signal of an upcoming policy change.
Helen Given, a currency trader at Monex USA in Washington, also notes that the statement by the head of the financial regulator was not a concrete indication of the intention to cancel the negative interest rate shortly.
On Monday, December 11, the markets estimated the probability of an interest rate hike in the current month at 8%. The probability of making an appropriate decision by the end of January is 46%.
At the same time, half of the economists surveyed by the media expect the cancellation of the negative interest rate in April next year. The fate of the rate below zero is the main question for observers of the Bank of Japan after the regulator made changes to its mechanism for controlling the yield curve with adjustments in July and October.
Ryozo Himino, deputy governor of the mentioned financial authority, said that exiting the policy of negative interest rates would have little impact on the country’s economy. According to him, in this case, the impact will be limited for consumers and banks, but for some companies, it will be more sensitive than for others.
Ryozo Himino assumes that with the abolition of the negative interest rate, the household sector, which is the main source of excess savings, will record an overall improvement in its balance of payments.
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