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Bank of Japan Set to Abandon Negative Interest Rate Policy in Wake of Significant Wage Increases

Bank of Japan Set to Abandon Negative Interest Rate Policy in Wake of Significant Wage Increases

Bank of Japan To Abolish Negative Interest Rate Policy

The Nikkei newspaper was informed on Saturday that the Bank of Japan (BOJ), as a direct response to considerable wage increases by the country's top organizations in this year's wage deals, will likely cease its negative interest rate policy on Tuesday.

BOJ Plans A Change In Rate Policy

The economic journal noted that the central bank had been orchestrating the termination of its negative interest rate policy both internally and externally since last Friday.

Substantial Wage Hikes By Major Japanese Firms

Last Friday, the country's biggest trade union group announced that Japan's largest corporations proposed wage rise of 5.28% for 2024. This signifies the heaviest wage increase in the past 33 years.

"Even reflationists, who typically tread with caution when tinkering with monetary policy, would find these wage increases worthy of a policy shift," a source within the BOJ, quoted by Nikkei, explained.

The Decision To Step Away From Negative Rates

BOJ officials, including Governor Kazuo Ueda, have persistently highlighted that the shift away from negative rates would be reliant on the results of this year's annual wage negotiations by employers and workers.

Insiders informed Reuters that if preliminary reports from big firms' wage negotiations, which came out Friday, show positive results, the BOJ will likely deliberate on terminating its negative rates next week.

Friday's remarkable wage hikes have considerably increased the likelihood that the BOJ would conclude eight years of negative interest rate policy next week, signalling a significant departure from its large-scale stimulus program.

"Given markets are expecting a move in March, there's no need for BOJ to postpone the decision until April," a government source privy to the BOJ's discussions remarked to Reuters.

A senior government representative, who frequently engages with sitting BOJ officials, advocated, "The BOJ should act sooner rather than later."

A request to comment from the BOJ went unanswered, as the bank is presently observing a black-out period during which its officials are not allowed to engage with the media.

Economists' Opinions on the BOJ's Future Policy Moves

A recent Reuters survey conducted in March revealed that 35% of economists anticipate the BOJ to end negative rates at the two-day meeting concluding on Tuesday. This is a rise from just 7% the previous month. However, 62% still believe such a move will occur at its next meeting on April 25-26.

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