BOJ’s Ueda says likelihood of hitting price goal improving

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MATSUE/TOKYO, Japan- The Bank of Japan’s (BOJ) governor and one of its board members said on Thursday the economy was moving towards the central bank’s 2 percent  inflation target, in comments that heightened market expectations of an imminent end to negative interest rates.

The remarks came as Japan’s largest trade union group Rengo said average wage hike demand hit 5.85 percent  for this year, topping 5 percent  for the first time in 30 years and heightening prospects of a broad-based pay rise that the BOJ set as a prerequisite for a stimulus exit.

BOJ board member Junko Nakagawa said the country’s intensifying labor shortages were prodding more companies to resume their practice of increasing pay annually, signaling conviction that conditions for phasing out the bank’s massive stimulus were falling into place.

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“We can say that prospects for the economy to achieve a positive cycle of (rising) inflation and wages are in sight,” Nakagawa told business leaders in the southwest Japan city of Matsue.

“There are clear signs of change in how companies set wages. Japan is moving steadily towards sustainably and stably achieving our 2 percent  inflation target,” she said.

The remarks came amid growing market expectations that the BOJ could exit negative interest rates this month, fueled in part by a media report on Wednesday that at least one of its board members could call for such an action this month.

The growing momentum for a March stimulus exit lifted the yen to a one-month high against the dollar, and pushed up government bond yields, a trend that continued on Thursday.

Analysts have tipped either the March or April meetings as possible timings of the pivot. Back in mid-February, most polled by Reuters saw April as far more likely because that is when the BOJ produces fresh quarterly growth and inflation forecasts.

Nakagawa’s remarks follow those of fellow BOJ board member Hajime Takata, who said last week Japan was finally seeing prospects it could durably achieving the bank’s 2 percent  inflation target.

BOJ governor Kazuo Ueda added to the hawkish chorus later on Thursday, saying the likelihood of achieving the bank’s inflation target was gradually rising.

“If we confirm that a positive wage-inflation cycle is strengthening, we can examine modifying our massive monetary easing measures,” Ueda told parliament.

“Regardless of whether we ditch or maintain yield curve control, we will continue to buy long-term bonds,” he said.

Despite recent weak signs in the economy, BOJ policymakers have signaled their intention to move ahead with their plan to dial back stimulus – including Ueda, who offered an upbeat take on Japan’s economic outlook last week.

Japan’s real wages shrank in January for the 22nd straight month but at the slowest pace in over a year, data showed on Thursday, as price pressures from rising food and raw material costs dissipated.

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