Former BOJ Member "Fully Prepared for Interest Rate Hike"
"Final Rate Target 0.5%... Will Take 3-4 Years"
"LDP Slush Fund Scandal Positive for Hike"
Japan's central bank, the Bank of Japan (BOJ), is highly likely to end the era of negative interest rates for the first time in 17 years this April, according to a former senior BOJ official, Bloomberg reported on the 10th (local time).
Former Commissioner Sakurai stated that the authorities are most likely to raise interest rates in April after observing the results of Japan's labor-management wage negotiations scheduled for March. He said, "The BOJ is fully prepared" and "is ready to gain the final momentum from one or two economic indicators." If Japan raises rates this time, it will be the first time in 17 years since 2007.
Former Commissioner Sakurai worked at the BOJ from 2016 to 2021 during the tenure of former BOJ Governor Kuroda Haruhiko. He is known as a key figure who played a leading role in reaching policy agreements at the BOJ at that time. Bloomberg reported that he is close to BOJ Governor Ueda Kazuo and still maintains close contact with BOJ commissioners.
Earlier, in December last year, Governor Ueda stated, "If there is sufficient prospect of continuously achieving the inflation target (2%), we will consider policy changes." This led to speculation that the negative interest rate might be lifted at the Monetary Policy Meeting scheduled for the 22nd-23rd. However, according to reports from Kyodo News and others, the timing has been delayed due to the impact of the Noto Peninsula earthquake on the 1st, and the prevailing view is that the negative interest rate will end in April.
However, the pace at which Japan normalizes after the first rate hike is expected to be gradual. Former Commissioner Sakurai said, "It is completely different from the U.S. Federal Reserve (Fed) or the European Central Bank (ECB)" and "What the Japanese economy needs is to continue an appropriate level of monetary easing." Unlike the situations faced by the Fed or ECB, Japan has a low risk of inflation deviating excessively from the target, so there is no need to rush rate hikes. Sakurai also explained that the potential impact of rate hikes on private banks needs to be carefully evaluated.
Former Commissioner Sakurai expects the BOJ's final interest rate target for short-term rates to be around 0.5%. He believes it will take 3 to 4 years for the BOJ to raise rates to 0.5%. He said, "Raising rates for the first time in 17 years will cause the market to be in a festive mood in April and May," but "the market will soon cool down once it realizes the gradual pace of subsequent rate hikes." Bloomberg explained that the BOJ is expected to raise rates once or twice in the first year of rate hikes.
Recently, Japanese politics has been in turmoil due to a slush fund scandal involving the ruling Liberal Democratic Party (LDP). Some suggest that the slush fund scandal could affect the timing of the end of negative interest rates. Former Commissioner Sakurai analyzed that the LDP slush fund scandal is a positive factor for rate hikes because the largest faction within the LDP supporting aggressive monetary easing policies, the "Abe faction," has been severely damaged by the scandal. Sakurai said, "The BOJ now has free will," and "When to raise rates depends on Governor Ueda."
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