Key Takeaways
The impending exit from yield curve control (YCC) and
negative interest rate policy (NIRP) in Japan is now a
consensus view. But there is a lively debate over the
timing and extent of the adjustments.
Minutes from the January BoJ meeting revealed a
distinct hawkish shift among members, showing
greater confidence around achieving the inflation
target.
The BoJ thinks it has a “golden opportunity” to adjust
policy before other central banks get into rate cutting
mode, pinning its hopes on a “virtuous cycle between
wages and prices”.
Policymakers have stated that a wide range of signals,
both quantitative and qualitative, must be monitored to
assess developments in wage growth.
We think inflation, wage growth and expenditure data
provide a mixed picture and have yet to fully confirm
that price pressures are sustainable. While the Shunto
wage round should be strong, headline inflation is
falling back and the economy is in recession.
While there are risks around the timing of a policy shift,
the BoJ is focusing on spring wage negotiations, the
April regional bank report, and its own monetary policy
review. We expect a shift by July, although the extent
of subsequent policy tightening may be limited.