BOJ to go slow in hiking rates after ending negative rates, says ex-central bank executive

By Thomson Reuters Mar 13, 2024 | 9:08 PM

By Leika Kihara

TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda will likely take his time normalising ultra-loose monetary policy after ending negative interest rates, former central bank executive Hideo Hayakawa said on Thursday.

During his five-year stint as BOJ board member until 2005, Ueda played a key role in the central bank’s introduction of forward guidance that pledged to keep interest rates at zero “until deflationary concerns are dispelled.”

Such experience suggests Ueda, a former academic, will change the BOJ’s current framework into an orthodox one combining a short-term interest rate target with guidance on the future monetary policy path, Hayakawa said at a seminar.

The BOJ will likely end negative interest rates this spring but take a wait-and-see approach thereafter to check whether inflation-adjusted real wages turn positive, said Hayakawa, the central bank’s former top economist.

“Given Mr. Ueda’s very cautious character and his focus on building consensus within the board, he will likely take plenty of time and proceed carefully in normalising policy,” he said.

In an effort to reflate growth and sustainably achieve its 2% inflation target, the BOJ currently guides short-term rates at -0.1% and caps the 10-year bond yield around zero. It also buys risky assets such as exchange-traded funds (ETF).

Sources have told Reuters the BOJ will debate exiting its negative rate policy next week if Friday’s preliminary survey on big firms’ wage talks outcome yield strong results.

An end to negative rates, which has been in place since 2016, would mark a landmark shift away from the BOJ’s massive stimulus programme and Japan’s first rate hike since 2007.

Upon ending negative rates, the BOJ will also ditch its bond yield control and dismantle a framework created to purchase risky assets such as exchange-traded funds (ETF), according to the sources.

(Reporting by Leika Kihara. Editing by Sam Holmes.)