Bank of Japan (BOJ) is set to conclude its eight-year experiment with negative interest rates, signalling a potential shift away from its massive stimulus program. The anticipated move comes amid a surge in expected historical wage hikes, heightening prospects for a landmark transition expected to be announced next week.

Preparations for this transition have been underway internally since Kazuo Ueda assumed office as BOJ governor in April last year, with significant progress made by the year-end, according to sources familiar with the central bank's deliberations.

BOJ officials, led by Ueda, have stressed that the timing of this shift away from negative rates hinges on the outcomes of this year's annual wage negotiations between workers and employers.

The recent announcement of substantial wage increases by major corporations like Toyota Motor, the most significant in 25 years, is viewed as clearing the path for the BOJ to phase out its extensive stimulus measures.

Should the conditions align favourably, the BOJ is expected to establish the overnight call rate as its new target, guiding it within a range of 0-0.1 per cent by offering 0.1 per cent interest on excess reserves held by financial institutions.

A final decision on whether to proceed with this transition is likely to be made next week or potentially delayed until April, following a thorough examination of a preliminary survey on wage negotiations outcomes among major firms, to be released by labour umbrella Rengo later today.

Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, stressed on the significance of the Rengo survey, suggesting that substantial wage hikes offered by major corporations could compel smaller firms to follow suit, thereby supporting the BOJ's decision to end negative rates in March.

Market analysts anticipate the Rengo survey to reveal wage increases of around 4.5 per cent to 5 per cent, surpassing last year's 3.8 per cent hike. This surge in wages heightens hopes of reviving stagnant household spending and fostering broader economic growth.

Upon exiting its negative rate policy, the BOJ is also expected to discontinue its bond yield control and cease purchases of risky assets like exchange-traded funds (ETFs), marking the formal conclusion of former Governor Haruhiko Kuroda's radical monetary experiment initiated in 2013.

While a significant portion of economists anticipates the BOJ's move to end negative rates at the upcoming meeting, attention is shifting to potential clues regarding the pace of subsequent interest rate hikes.

Governor Ueda has reiterated the central bank's commitment to maintaining accommodative monetary conditions even after ending negative rates, aiming to avoid any disruption from the current ultra-loose policy amidst economic uncertainty.

(With Reuters inputs)