Wage Increase Momentum, Service Sector Prices Up
Yen Rises About 1% Against US Dollar
Caution Advised Amid Market Overreaction
Officials at the Bank of Japan (BOJ) are expressing confidence in escaping the negative interest rate, major foreign media reported on the 4th (local time).
Previously, at last month's monetary policy meeting, the BOJ maintained the benchmark interest rate at minus 0.1% as the market expected. Governor Kazuo Ueda also made no specific remarks about the possibility of a rate hike within the year.
However, in the subsequently released quarterly economic outlook report, the emergence of wage increases and rising service sector prices has strengthened the BOJ's optimistic inflation outlook, analysts say.
Additionally, the BOJ added new wording stating that the likelihood of achieving its 2% inflation target is "continuously and gradually increasing," which suggests that the end of large-scale quantitative easing is approaching.
A BOJ official explained, "The addition of this phrase is intended to communicate the BOJ's policy intentions to the market and to clearly express an optimistic economic outlook." He added, "Although we cannot specify when, the economy is steadily moving in the direction of policy adjustments."
Masamichi Adachi, an economist at UBS, said, "The BOJ's addition of this phrase to the economic outlook is a clear message that policy changes are coming soon."
Japan's 10-year government bond yield rose from 0.6% to 0.7% following the BOJ's benchmark rate decision, and the yen strengthened by about 1% against the US dollar. The yen's appreciation is interpreted as reflecting the market's view that Japan may soon exit the negative interest rate policy.
However, some caution against overinterpreting the BOJ's signals and emphasize the need for careful evaluation of additional economic indicators related to prices and wages.
Stefan Angrick, senior economist at Moody's Analytics, pointed out, "Although the BOJ took an optimistic tone on the economy, recent data such as Japan's consumer spending still being at 2021 levels do not necessarily support the central bank's view."
He continued, "The BOJ is trying to prepare a runway for policy shifts, but if it waits too long, data may continue to weaken and the justification for policy normalization could run out," expressing concern.
A BOJ board member also described the current situation as a "golden opportunity," warning that "upcoming policy shifts by overseas central banks could reduce Japan's monetary policy flexibility."
Meanwhile, Governor Ueda indicated at a press conference last week that "an extremely accommodative (easing) financial environment will continue for the time being," suggesting that the decision to end negative interest rates does not guarantee the rate hike cycle that the market expects.
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