Bank of Japan likely to end negative interest rate policy next week

BOJ ending negative rates: The Bank of Japan (BOJ) is anticipated to discontinue its negative interest rate policy next week, according to a report by Nikkei. This move comes in response to significant wage increases by major corporations during this year's wage negotiations. 

The Nikkei newspaper stated that the BOJ initiated discussions within and outside the bank regarding the termination of its negative interest rate policy on Friday.

Record wage hikes

Japan's largest companies have agreed to raise wages by 5.28 per cent for the year 2024, marking the highest pay hikes in over three decades, as confirmed by the country's largest union group on Friday. The substantial increase in wages this year is seen as a catalyst for policy change, even convincing those cautious about modifying monetary policy, as per a source cited by Nikkei.

BOJ officials, including Governor Kazuo Ueda, have stressed that the decision to move away from negative rates would hinge on the outcome of the annual wage negotiations. Reuters sources indicate that if the preliminary survey results from Friday's wage talks are robust, the BOJ will deliberate ending negative rates next week.

BOJ's stimulus change

The unexpectedly large pay raises announced on Friday have increased the likelihood of the BOJ ending its eight-year-long negative interest rate policy next week. This potential shift marks a departure from its extensive stimulus programme. Government sources suggest that with markets already anticipating action in March, there's little reason for the BOJ to delay the decision until April.

However, the BOJ declined to comment due to its blackout period, during which its officials are barred from speaking to the media. According to a Reuters poll conducted in March, 35 per cent of economists anticipate the BOJ ending negative rates at the upcoming two-day meeting ending on Tuesday, a significant increase from the previous month.

(With Reuters Inputs)