BOJ’s Unique Position Among Central Banks
The BOJ, considered a global outlier, is anticipated to conclude the year as one of the world’s most dovish central banks. However, economists predict that it may soon start increasing interest rates, contrasting with other developed nations that have either paused rate hikes or are preparing for cuts in 2022.
Unwinding Monetary Conditions in January?
While none of the economists in the poll foresaw immediate changes at the upcoming meeting, 21% of them – six out of 28 – speculated that the BOJ might begin dismantling the current monetary conditions in January. Among those, Daiwa Securities, Mitsubishi UFJ, Morgan Stanley, Nomura Securities, and T&D Asset Management predicted that the BOJ would end its negative interest rate policy during the January 22-23 meeting.
Daiwa Securities further suggested that the BOJ might make adjustments to the Yield Curve Control (YCC) framework to prevent a sharp increase in long-term interest rates while raising the long-term interest rate guidance target. Mari Iwashita, Chief Market Economist at Daiwa Securities, emphasized the importance of informing the market in advance by issuing a directive this month to BOJ leadership regarding the lifting of the negative interest rate. Iwashita also mentioned that even with the elimination of the negative rate policy, the BOJ would clarify that the financial environment remains accommodative.
Anticipation of Policy Changes in April
Looking ahead, economists in the poll increasingly expect the negative rate policy to come to an end by the end of 2024. In an extra question posed in the poll, April emerged as the most likely period for the abandonment of the negative rate policy, with 61% of respondents (17 out of 28) selecting it. Moe Nakahama, a research associate at Itochu Research Institute, explained that the BOJ would revise the price outlook in April and state in its quarterly report that the price target will be achieved after assessing wage increases during next year’s spring labor negotiations. Nakahama further predicted that the BOJ would terminate both the negative rate and YCC policies simultaneously in April.
As for the deposit rate predictions, 10 out of 44 economists expected it to range between 0.00% and 0.10% during the January-March quarter next year. In the subsequent quarter, 28 out of 42 respondents anticipated the rate to be either 0.00% or 0.10%, while two participants believed it could go as high as 0.25%. Nearly 90% of economists (23 out of 26) stated that the BOJ would end YCC rather than make any further adjustments. Among those, three forecasted January as the end date, one chose March, ten selected April, one identified June, and another five preferred July.