TOKYO- The Bank of Japan is expected to end its negative interest rate policy in April and keep raising short-term borrowing costs next year on heightening prospects of sustained wage growth, its former top economist Hideo Hayakawa said on Tuesday.
With inflation already exceeding the BOJ’s 2 percent target for more than a year, the central bank tweaked yield curve control (YCC) in October to allow long-term rates to rise more – a move seen by markets as a step toward phasing out its huge stimulus.
While the BOJ maintains its 0 percent target for the 10-year bond yield under YCC, Hayakawa said the bank “effectively dismantled” the framework in October by re-defining what was a rigid 1 percent cap for the yield to a loose reference.
As the next step, the BOJ will likely raise short-term rates to around zero from -0.1 percent in April, when more data becomes available on next year’s spring wage negotiations, he said.
“Service prices are already rising and prospects of seeing solid wage growth next year are heightening. But the evidence (on wage growth) isn’t available yet,” Hayakawa told Reuters in an interview.
“The BOJ is just waiting for more evidence” that inflation will sustainably hit 2 percent , Hayakawa said. “Once that’s available, BOJ will end negative rates.”
When exiting negative rates, the BOJ can maintain YCC in its current form and use it as a backstop to deal with any abrupt spike in long-term rates, he added. – Reuters
