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.

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