TOKYO (Reuters) – The Bank of Japan will end its negative interest rate policy next year, according to nearly two-thirds of economists in a Reuters poll, with more now saying the central bank is inching closer to phasing out ultra-accommodative monetary policy.
BOJ Governor Kazuo Ueda is seeking to dial back the complex monetary stimulus deployed by his predecessor, but faces a challenging task of doing so without causing sharp and disruptive swings in capital markets.
While 25 of 28 economists polled Oct 17-25 expect no change to policy at next week’s meeting, the remaining three, at Barclays, JP Morgan and UBS, said the BOJ would begin unwinding its easy stance then.
A further 17 of 27, or 63%, expected the BOJ to end its negative rate policy, which has set Japan’s short-term deposit rate at minus 0.1%, by the end of next year. That was up from 52% in a September poll and just 41% in August.
The remaining 10 economists selected “2025 or later.”
Of the 17 economists who chose 2024, 10 identified the April 25-26 meeting for the end of negative rates, the poll found. Three opted for January, while two went for July, one selected March and another picked June.
Japan stands out as the sole major central bank that has forged ahead with easy policy during a time when most others have aggressively raised interest rates to tamp down inflation, with some policymakers still not ready to call time on tightening.
UBS economist Masamichi Adachi said the BOJ will end negative interest rates at its April meeting after observing the results of next year’s spring wage negotiations. He says its goal of stably achieving the 2% inflation target will be met in fiscal year 2026.
Around 70% of poll respondents forecast the BOJ to end its yield curve control (YCC) policy by end-2024, down from 78% in the previous month’s poll, which had slightly fewer respondents.
“The current prolonged period of above-target inflation provides the Bank a window of opportunity to finally get rid of ultra-loose monetary policy. We expect negative interest rates to end in January 2024 and yield curve control to be ditched in July 2024,” said Marcel Thieliant at Capital Economics.
Aside from ending negative rates and YCC, six economists identified raising the 10-year Japanese government bond yield target – which is strictly capped by fixed-rate purchase operations – above 1.0% as one of the most likely next step of winding down easy policy.
The BOJ in July modified YCC to allow long-term rates to rise more in line with higher inflation.
At its October policy meeting, the BOJ is also set to raise its core consumer inflation forecast for the fiscal year ending in March 2024 to near 3% from the current 2.5% projection made in July, sources told Reuters.
While economists’ median forecast for core consumer inflation in fiscal 2024 was unchanged at 2.0%, 89% said the risk to their inflation outlook was skewed to the upside.
(For other stories from the Reuters global economic poll:)
(Reporting by Satoshi Sugiyama; Additional reporting by Kantaro Komiya; Polling by Veronica Khongwir and Anant Chandak; Editing by Sam Holmes)
