The Bank of Japan (BoJ) believes that there is little urgency to remove negative interest rates or yield curve control (YCC) this month due to the lack of sufficient evidence for achieving a virtuous cycle of wages and prices, according to multiple sources familiar with the matter.
This suggests that the BoJ is likely to postpone the normalization of its monetary policy at its policy meeting scheduled for the 18th and 19th of this month. According to insiders, the cost of waiting until robust wage growth is confirmed in data is not perceived to be too high.
The BoJ still does not see a situation where the sustained and stable achievement of its 2% inflation target, a condition for lifting measures like negative interest rates, has been realized. While expectations for wage increases in the coming year are rising, there is still not enough certainty, and many within the BoJ believe that they need to continue assessing the realization of a virtuous cycle of wages and prices.
The central bank will assess economic and price developments, as well as market trends, including the December Tankan survey released on the 13th, to determine the need for policy responses.
In its previous meeting in October, the BoJ decided to allow more flexibility in the operation of yield curve control, permitting long-term interest rates to exceed 1%. The market has been speculating that negative interest rates could be removed as early as this month.
Regarding the management of monetary policy, market expectations for early normalization have rapidly increased due to remarks made by Governor Kaziwada Kazuo during his testimony before the National Diet on the 7th, where he mentioned that the situation could become more challenging from the end of this year into next year. However, insiders clarify that Governor Kaziwada’s remarks were just a general view and did not imply any imminent policy changes.
The JPY-buying sentiment has shifted for now, as there is no immediate urgency for the Bank of Japan to make significant policy changes this month.