BOJ to end negative rates in April, high chance of March, analysts say: Reuters poll

By Thomson Reuters Mar 14, 2024 | 11:09 PM

By Satoshi Sugiyama

TOKYO (Reuters) – The Bank of Japan will ditch its negative interest rate policy in April, according to just under two-thirds of economists polled by Reuters, although a growing minority now expect it to happen this month compared to only a few surveyed in February.

Just in the last few days, some have leaned toward an imminent first step toward departing a decades-long stimulus programme, driven by news of strong pay hikes at big firms and hawkish comments from BOJ policymakers on the inflation target.

The central bank has long contended robust wage growth was a prerequisite for rolling back its accommodative settings.

An end to negative interest rates, which have been in place since 2016, would mark a landmark shift in policy and would be Japan’s first interest rate hike since 2007, just before the global financial crisis.

Twelve of 34 economists, or 35%, picked the BOJ’s two-day meeting concluding on Tuesday for an end to negative rates, the March 11-14 poll showed. That is up from 7%, or just two of 30 respondents, in February’s survey.

April was still the top pick, with 21 of 34, or just under two-thirds of economists in the poll.

The BOJ would have more information to make a decision in April, including the business confidence level and outlook through its “tankan” report and local economy trends at a branch managers’ meeting, said Kohei Okazaki, a senior economist at Nomura Securities.

“In addition, the April meeting will be convenient in that the quarterly outlook report will be published, making it easier to hold policy changes accountable.”

But the number of forecasters who say a change is imminent is growing.

“Postponing the lifting of negative interest rates could backfire,” said Satsuki Kimura, economist at Meiji Yasuda Research Institute, which previously picked April.

A string of weak economic indicators in the U.S. and growing speculation a rate cut is on the way from the Federal Reserve could strengthen the yen and weaken stocks, which would make it more difficult for the BOJ to make an opposite move, she said.

An overwhelming majority of 52 economists who provided end-quarter views for the BOJ’s deposit rate said -0.1% or 0.0% at the end of the January-March period. Four forecast it to have risen to 0.1%, with 13 saying so for the end of April-June.

Only one firm – JP Morgan – chose months outside March or April for ending negative interest rates.

A strong 80% majority of economists in the poll, 24 of 30, expect the central bank to end yield curve control (YCC) – a policy that guides the 10-year-bond yield around 0% with a loose cap of 1% – either this month or next.

That easily outstripped the rest who just expect it to be modified. These results were roughly in line with the February poll.

Of those 26 economists who predicted YCC’s demise in total, 31% selected March and 62% picked April. Nearly all of the respondents said an end to negative rates would happen simultaneously in that respective month.

Aside from March and April, 3% picked July while another 3% went for September.

Japan’s Jiji news agency reported last week the BOJ is considering replacing YCC with a new quantitative framework that will show in advance the amount of bonds it will buy in the future.

The BOJ will likely offer numerical guidance on the amount of government bonds it will buy upon ending YCC and negative interest rates, sources have told Reuters.

(For other stories from the Reuters global economic poll:)

(Reporting by Satoshi Sugiyama; Additional reporting by Kaori Kaneko; Polling by Milounee Purohit, Susobhan Sarkar and Anant Chandak; Editing by Sam Holmes)