Cardano: Bank of Japan votes to end its negative interest rate policy

Cardano: Bank of Japan votes to end its negative interest rate policy

20 maart 2024

Japan
Japanse economie.jpg

Commenting on the Bank of Japan’s decision to end its cycle of negative interest rates, Corné van Zeijl, Economist and Strategist at Cardano, said:

'At its latest monetary policy meeting, the Bank of Japan voted to end its negative interest rate policy (NIRP), abolish yield curve control (YCC), and phase out purchases of risk assets. As a result, monetary policy in Japan remains much looser than the rest of the developed world.

While we had expected the Bank of Japan to remove NIRP this year, this change came earlier than we had pencilled in. Policymakers are trying to erase the deflationary mindset that the Japanese economy has seen over the past thirty years and signs of progress are materialising across multiple fronts, with a 'virtuous cycle between wages and prices' beginning to form.

The main evidence for this was the initial outcome of the annual Shunto wage agreement process, indicating settlements at 5.3%. While the final number will likely be lower, this was a major increase on the number seen at this time last year, and the highest reading for over 30 years.   

For the Bank to be confident that a virtuous cycle has taken hold, we think that positive momentum will have to transition from external demand (driven by weak JPY, equity flows, imported inflation) to domestic demand (stronger wages, consumption, domestically driven inflation). This pivot is indeed underway, with the substantial increase in wages looking broad-based and fiscal policy also seeking to encourage higher consumption.

The Bank is in a relatively comfortable position, where inflation is falling towards target, growth is expected to reaccelerate, and wages are rising. This means they are not being forced to tighten policy and can maintain an accommodative stance while removing the extreme easing measures that marked the Kuroda regime.'

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